Brazil based Compagas eyes Argentina
Compagas see a supply shift from Argentina
Petroleumworld 10 12 2020
Five natural gas distributors in south-central Brazil are meeting this week in anticipation of a second tender offer in early 2021. Rafael Lamastra, president of Parana-based Compagas, spoke to Argus about the prospects for the new offer and the opening for Brazil's gas market as state-controlled Petrobras pulls back.
What is the outlook for the 2021 joint tender offer for gas supply contracts after the initial offer failed to attract new suppliers?
The first joint tender offer was not a failure. Together, the five distribution companies received over 50 proposals. Compagas alone received 10 proposals, which we narrowed down to a short list of four companies. It would have been a failure had we not received any proposals. Many of these suppliers submitted proposals because they saw potential improvements in the regulatory environment, because of (federal) government efforts to open up the market and because of Petrobras' agreement with (antitrust regulator) Cade. But suppliers eventually realized that not much would change in the short term and they ended up withdrawing their offers.
What was the final result of the tender offer?
In the end, only one supplier – Petrobras – was awarded contracts. We told both (mines and energy) minister Bento and (economy) minister Paulo Guedes that we lamented the fact that the government efforts to diversify gas supply had been unsuccessful and that Petrobras continues to be the dominant player.
Why do you believe next year's tender will be more successful?
We expect to see some progress, but the reality is that we do not have LNG terminals, our gas pipelines do not have a lot of excess capacity and gas from (offshore) pre-salt fields still is not being delivered to southern Brazil. Pre-salt gas should be sold for $4/mn Btu, but for now, Petrobras buys or produces all pre-salt gas that hits the market and sets the price. But there have been some positive changes. New technologies have made LNG a possibility and we have had discussions with companies interested in bringing gas in from Argentina. The upcoming tender offer will give us a better understanding of the new supply landscape.
What about Bolivian gas ?
Even with the recent announcement by Petrobras to reduce its gas supply contract with Bolivia, we are concerned that there might not be sufficient gas volumes. Compagas had discussions with members of Bolivia's current government and it is possible that part of the gas it currently sells to Argentina could be redirected to Brazil. But we are waiting for the results of Bolivia's (18 October) election.
Do you expect gas prices to fall?
Yes, but this is a slow process and depends on more suppliers entering the market and clear regulations regarding access to infrastructure. When all of the pieces are in place, prices will come down. But this cannot be done by decree. Although a lot has already been done, many measures still need to be implemented. But nothing is going to change overnight.
What is the strategy to address unmet gas demand in Parana state?
There is significant demand for competitively priced gas in Parana. Providing low-cost gas to our customers is our main goal – it is the top issue for both Compagas and for local industry. Local industry cannot compete globally with gas at these levels. We cannot just wait for Petrobras to lower prices – we need to find alternatives.
What about biogas ?
Compagas would probably buy any biogas that is available in the state. We have a lot of potential feedstock for biogas with our agricultural production and many investments have been announced. But price will be the key – competitively priced gas is already a problem and we can only purchase biogas if the price is competitive.
What is your view on the gas law , which was recently approved in the lower house of the congress?
Roughly 40pc of Parana's economic output comes from agriculture and nearly all of these farms and meat-processing plants are located in regions that lack gas distribution. There are many important cities that also lack gas distribution networks. In its current form, the gas law does not stimulate the construction of new gas pipelines and as a result, the law will not make any difference for parts of the state that currently do not have gas infrastructure. We believe that the law should have gas pipeline expansion targets. Compagas, for example, only distributes gas in 16 of the state's 399 municipalities.
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