Brazil gas market suffers from slow investments

Brazil will need to accelerate investments in natural gas infrastructure to meet anticipated demand in the next decade, as its southern cone neighbors face their own delays.

With the announced delay of operations on the third pre-salt gas outflow pipeline Rota 3, Brazilian gas consumers say the country needs a larger gas supply, according to a recent study and discussions with market participants, with no chance of additional supply from Bolivia or Argentina imminent.

The pace of investment in Brazil's infrastructure has slowed and is unable to compensate even for natural economic demand growth, according to a study from consulting firm Inter.B. Brazilian investment in infrastructure expected for 2022 accounts for 1.71pc of the GDP, while investments required to bring infrastructure up to par with growth expectations would require at least 3.64pc of GDP annually.

Brazilian energy research bureau (EPE) estimates that Brazil will need significant investments to expand its offshore gas supply, which is key to increasing the country's overall gas supply and reducing dependency on imported LNG. Building a fourth offshore pipeline would cost around R4.5bn, while other projects for offshore pipelines would range from R2.5bn to R5.2bn. The 11 pipelines planned would add 70mm m³/d of capacity, but would cost R40bn.

Brazilian development bank BNDES has been a key participant in major pipeline expansion projects, spending R19.6bn ($3.7bn) from 1998-2020, with 66pc going to transport pipelines and 31pc to gas distribution.

With less pipeline capacity than needed, offshore gas producers pump almost half of the gas back into wells. Oil and gas regulator ANP said the issue will be addressed through the ongoing updating of resolution 17/2015. ANP told Argus it hopes to require new oil and gas field developments include plans to maximize natural gas production and transportation, but the effort will not apply to existing projects.

Brazil may face difficulties with gas supply, says Alvaro Rios, director at consulting firm Gas Energy Latin America. Neighboring Bolivia has declining production and Argentina is just starting construction of the Nestor Kirchner pipeline to bring gas from the Vaca Muerta field into Buenos Aires — a project that can reduce Argentinian dependence on Bolivian gas, leaving more of it for Brazil.

But gas imports from Argentina are also far from a reality. Brazil lacks a crucial pipeline to allow Argentinian gas to reach the country's main consumption centers. Pipeline operator TBG is authorized to build the 594km Uruguaiana-Triunfo line, which would connect Argentina to an existing pipeline in the state of Rio Grande do Sul, but the project will cost R.46bn, according to EPE.

A lack of additional pipeline capacity in Brazil can also hinder plans to purchase more Bolivian gas without Petrobras' participation. On the 30mm m³/d Bolivia-Brazil pipeline operated by TBG, only 10mn m³/d of firm capacity is available as Petrobras holds the remaining 20mn m³/d. 
Efforts by Mercosul's member countries to integrate infrastructure in the energy sector have decreased in the past 10 years, in a process intensified by the Covid-19 pandemic, said Sidney Ferreira Leite, international relations coordinator at IBS Americas business school.

"Mercosul's 2021 main projects were focused on building railroads for cargo and people. The idea to seek integration of economic policies has weakened," Leite said.

By Flavia Pierry