Brazil's gas pipeline, processing access challenges producers, suppliers

Access to Brazil's natural gas pipelines and processing facilities remains a key challenge that new producers and suppliers need to resolve to create the dynamic environment the country's New Gas Market promises, executives said in a Feb. 8 webinar.

While Brazil's New Gas Market created more liberal rules aimed at generating competition, increasing consumption, and reducing prices, Latin America's largest economy lacks the massive network of pipelines and processing facilities needed to handle the influx of fresh demand from gas producers looking to sell their output into the market. That's because of the vestiges of Petrobras' monopoly over the gas sector, which left the state-led producer as the dominant infrastructure investor and operator as well as the country's buyer of first resort for other companies gas output.

Now that the rules have changed and producers can sell gas directly to consumers, regulations need to catch up, executives said.

"It's an important point and, perhaps, one of the most critical for us now," said João Vitor Moreira, director for regulations and new business at onshore producer PetroReconcavo. PetroReconcavo has played an important role in the New Gas Market, emerging as a new supplier to state gas distribution companies as Petrobras' role diminished.

PetroReconcavo emerged as a player in public tenders several state gas distribution companies issued after acquiring several groups of onshore production fields from Petrobras. In November, Petrobras granted PetroReconcavo access to an export pipeline and processing plant at Guamare in Rio Grande do Norte state that allowed the upstart producer to start delivery on a contract with Companhia Potiguar de Gás, or Potigás.

Under terms of the supply deal with Potigás, PetroReconcavo started delivery of 236,000 cu m/d Jan. 1. The contract with PetroReconcavo is expected to reduce Potigás' prices by 35%, according to Potigás.

Access issues

But PetroReconcavo was forced to assume risk and sign gas-transportation contracts with pipeline operator Transportadora Asociada de Gás before the company had finalized the swap contracts with Petrobras, Moreira said. "We bet on Petrobras' commitment and were able to conclude the deal," Moreira said.

Shell and PetroReconcavo also each won contracts to supply Paraiba state gas distributor PBGas in 2022 and 2023. PetroReconcavo started to supply 50,000 cu m/d to PBGas Jan. 1, which will rise to 150,000 cu m/d Jan. 1, 2023. Shell will supply 100,000 cu m/d in 2022, while Petrobras will supply 80,000 cu m/d until December 2023 under a previously existing contract.

"The future will require greater agility from us, primarily transport agents," Moreira said. In addition, adjustments need to be made to how tariff rates are calculated. Transportation rates on pipelines today are higher than they were before Petrobras divested the assets when the tariffs reflected remuneration for the actual investments to build the network, Moreira noted.

Potigás estimated that gas export and processing represented about 16.6% of the distributor's price for end consumers, while transportation costs accounted for 12.3%, CEO Larissa Dantas said. The price of the molecule, meanwhile, accounted for about 30.1%, while Potigás' margin was 17%.

But Petrobras' disappearance as the dominant player in the gas market came with a price, Dantas noted. State gas distributors and new producers have now assumed the operational roles previously played by Petrobras.

"We arrived at an interesting tariff, but it's all part of the new processes that are being implemented and will need to be implemented by distributors if we're going to have the new dynamics of the New Gas Market," Dantas said.

Brazil also needs to continue to expand its sources of new gas beyond the riches offered by offshore deposits, executives said. One potential area of development would be biogas, or renewable natural gas. The gas is typically produced from the processing of organic or agricultural materials, urban waste, and wastewater treatment.

Biogas output currently hovers at about 380,000 cu m/d, said Gabriel Kropsch, vice president of the Brazilian Biogas Association. Projects currently under development could boost output to about 30 million cu m/d by 2030, but Brazil's biogas potential could be as high as 120 million cu m/d, Kropsch said.

Brazil produced about 134 million cu m/d in 2021, but the development of subsalt deposits and other gas-dominant fields is expected to nearly double output to 260 million cu m/d by 2030, according to the government's Energy Research Co.

"Biogas is there waiting to contribute to this free market," Kropsch said.