Biogas scrambles to find viable model in Brazil

Natural gas consumers in Brazil are keenly eyeing biomethane's potential in Brazil, but generators and consumers are struggling to find a model that stimulates investments and takes full advantage of its green attributes.

Brazilian biogas producers association Abiogas says 26 new biomethane generation plants will be built in the coming years, which will bring production to more than 2mn m³/d by 2025. The group also says that Sao Paulo state alone — home to most of Brazil's sugarcane industry — has a total biogas output potential of more than 30mn m³/d in standard conditions.

But current output is well short of those 2025 projections. Only 40,000 m³/d of biomethane are being produced currently in Brazil, and only at four sites. "It is a market waiting to happen,"said Luciano Vilas Boas, the new businesses director at biomethane producer MDC during an event hosted by Sao Paulo regulator Arsesp.

Sao Paulo distributor Comgas, which is the biggest natural gas buyer in Brazil, also challenges the optimistic prospects of biomethane expansion. By 2025, Comgas expects its potential biomethane demand to be 430,000 m³/d.

The nascent stage of the liberalized natural gas market also hinders biomethane expansion. But since its production is still in the early stages, with initial investments focused on production plant construction, the dilemmas faced by the natural gas market weigh even heavier on the market.

The difficulty for consumers to partially migrate into the bilateral contracts market is one problem, according to consumers who talked to Argus. Pipeline infrastructure challenges also inhibit biomethane contracts that could anchor the capacity expansion investment.

But other issues come up, such as regulation and the relationship with the local gas distributors. Some gas producers and generators claim biomethane deserves subsidies for distribution fees, to stimulate the embryonic market. MDC argues that biomethane's distribution tariffs should be equal to or lower than natural gas', since it should not have to pay for the amortization of the grid, mostly used by fossil fuel-related gas.

During Arsesp's event, at least one generator and one consumer hailed the idea of lower distribution tariffs, pointing to discounts offered in the last decade in the Brazilian power market as prior examples. But the gas distributors' association opposes the idea.

The cost-sharing for biomethane among regulated consumers at one distributor is also a challenge. The renewable gas may come with a higher price than fossil fuel natural gas, which would drive some consumers away, while others would welcome adding a green attribute to its biomethane consumption. Also, new pipelines may be needed to reach biomethane plants, but it is uncertain whether these should be paid by all consumers.

Distributors, producers and Sao Paulo state's regulator also discussed the pricing method that should be used in contracts for biomethane supplied to distributors. Considerations include if they should price biomethane supply based on Brazil's inflation rate or link it to other indexes.

One area of consensus is that regulators and lawmakers should not require that biomethane be added to natural gas, according to consumers and generators that talked to Argus.

A market of financial attributes to help price biomethane, such as carbon reduction or renewable energy certificates, is far from becoming a reality in Brazil. Sugar producer Adecoagro has issued the only renewable energy certificate for biogas in the country so far, 25,000 GasRECs, which equal 1mnBtU each.

By Flávia Pierry