Competition in Brazil's natural gas market has increased and new participants have emerged five years after the new gas law reshaped the regulatory landscape. Yet persistent bottlenecks in taxation, infrastructure access and state-level regulation continue to limit the market's full potential, crude and gas institute IBP's executive director Sylvie D'Apote told Argus. Edited highlights follow.
There have been many changes and challenges since the new gas law took effect in April 2021. How do you assess this process?
The overall balance is positive, but there is still work to be done. The law was a key milestone to enable new participants and promote competition in a historically concentrated market. Since then, we have seen meaningful progress, including the sale of assets, the emergence of new suppliers and trading companies, regulatory improvements by [hydrocarbon regulator] ANP, and a gradual — though still uneven — evolution of state-level regulation, allowing for market opening and an increasing number of unregulated consumers.
The law was only the starting point. The critical phase lies in its effective and coordinated implementation. This requires clear, stable and consistent regulation by federal and state authorities to reduce risk and support long-term investment decisions across the value chain.
The remaining bottlenecks are well known. Federal-level regulation of gas transportation is evolving, but the tax system still needs to be adjusted to enable full implementation of the new entry-exit transport tariff system. At the state level, further regulatory adjustments are needed to increase unregulated gas consumers and reduce inefficiencies and costs.
The key challenge is ensuring that market opening translates into effective access to infrastructure, competitive pricing and sustained demand growth. Only then will it be possible to unlock the full potential of Brazil's gas market and create a more dynamic, integrated, and competitive sector.
Market participants say that Brazilian gas could be more competitive and have the same prices as biomass, electricity or coal. How can the main bottlenecks be addressed to achieve that?
The final cost of gas in Brazil is largely driven by infrastructure — reflected in transportation and distribution tariffs — as well as federal and state taxation. As a result, even when upstream costs are competitive, inefficiencies and distortions in the midstream and downstream segments can significantly erode gas' competitiveness. Indeed, Brazil has a similar molecule price than other countries that rely on gas imports, but significantly higher transportation and distribution tariffs.
From a regulatory perspective, there is still a need to strengthen ANP's regulation, make state-level frameworks compatible with each other and address tariff distortions. These are essential not only to make gas more competitive but also to provide an efficient and predictable regulatory environment required for long-term investments.
Transport tariffs remain a central concern. IBP studies point to the risk of double renumeration of assets that have been depreciated, which can place an unnecessary burden on final gas prices.
At the distribution level, expansion strategies and investment decisions must be closely aligned with demand growth and affordability. In a context where distribution tariffs are already high — and have been rising in many states — there is a real risk that cost increases may outpace the market's ability to absorb them, ultimately constraining consumption and limiting the development of new demand.
Some large consumers point to Brazil's high gas reinjection rate as one of the villains behind high prices. Is it possible to reduce reinjection rates?
Brazil produces significant volumes of associated gas, especially in the pre-salt, and a portion of this gas is reinjected. But the decision between reinjecting and selling that gas is inherently complex and cannot be reduced to a simple operational or logistical matter. It reflects a combination of technical, economic and strategic considerations, including reservoir management requirements, the handling of gas with high CO₂ content and the role of reinjection in enhancing oil recovery.
So reinjection is not merely a consequence of infrastructure limitations nor a decision that can be readily reversed through additional investment. It is, in most cases, an integral component of field development and production optimization strategies, aimed at maximizing resource recovery and the overall value of the asset.
Attributing the low competitiveness of Brazilian gas to reinjection rates is a conceptual mistake. Forcing a shift toward higher gas production at the expense of oil could undermine project value and potentially increase, rather than reduce, the cost of gas supply.
Whether Brazil can reduce reinjection rates depends on the context. For existing assets, the scope for change is typically very limited, given the technical and economic constraints embedded in project design. For future developments, reducing reinjection will depend on field-specific characteristics and, crucially, on the broader market environment — particularly the existence of firm demand to support long-term gas sales and a stable legal, fiscal and regulatory framework suitable for long-term investments in the entire value chain.
Power plant dispatch levels drive a large share of Brazil's gas consumption. Are there ways for the gas market to move beyond such a demand anchor?
The power sector will continue to play a central role in Brazil's gas demand. Gas is essential as a complement to renewable generation, contributing to system reliability, flexibility, and security of supply. But relying predominantly on thermal dispatch — which is intermittent and hydrology-dependent — creates a volatile demand profile that limits the development of a more mature and dynamic gas market.
Sustainable market growth, especially one that requires significant investment in infrastructure, depends on stable demand sources. In this regard, there are several clear avenues for expansion: fuel switching in industry from more carbon-intensive and less efficient energy sources, increased use of gas in cogeneration and the development of gas use in heavy-duty transport, among others.
The key challenge is to effectively convert these opportunities into firm demand. That accelerating market opening, more efficient and better-coordinated infrastructure development, a predictable regulatory framework and a reduction of tax distortions that currently affect gas competitiveness and/or the perception of risks for new gas consuming projects.
