Brazil gas market reform unlocks investment across value chain

Brazil’s natural gas market reforms have taken a major step forward, with plans in place which are set to open up opportunities across the gas value chain, and boost investment in the country’s pre-salt.

The National Council for Energy Policy (CNPE) recently unveiled its roadmap for opening the gas market to third-party investment, which, it hopes, will drive gas prices down by increasing competition along the gas value chain. The plan includes granting third parties access to transportation and allowing producers to sell gas output to companies other than Petrobras.

Mauro Chavez, Principal Analyst, Latin America Gas and LNG, Wood Mackenzie, comments: ‘One of the biggest barriers to major E&P investments in Brazil to date has been limited gas management options within the country. Now that transportation is open to third parties, new monetisation options exist, such as selling to local distribution companies (LDCs), power plants in the transport grid and industrial users. Once access to gas transport capacity is granted, demand recontracting will help drive opening the Brazilian gas market. In the next five years, all LDCs and more than 9 GW of thermal power plants will need to sign new gas supply agreements.’

As part of the reform programme, state-controlled Petrobras has outlined moves to reduce the company’s position in the Brazilian gas market, including asset divestments and gas commercialisation. However, it will continue to control existing gathering and processing infrastructure.

According to Chavez, this means that ‘ultimately, Petrobras’ role will change from being responsible for gas supply security, to maximising the value of its own gas portfolio and capital expenses’. He continues: ‘There are M&A opportunities as Petrobras is committed to divest from LDCs and pipeline transport, which includes selling its major stake in TBG. These new policies will set a new competitive environment for gas commercialisation. The first test will be Bolivian gas recontracting and later domestic gas from other pre-salt producers.’

For more on major asset disposals by Petrobras, see Petroleum Review’s forthcoming September 2019 issue.