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Brazil's new Gas Law still needs development of rules

The Oil Block

The Mines and Energy Ministry expects to publish regulations surrounding the New Gas Law approved by Congress on June 2021.

- Regulations expected to be published mid-2021
- State and federal harmonization needed

By Jeff Fick/Platts
RIO
Petroleumworld 05 26 2021

Brazil's New Gas Law gave the industry better legal stability and improved the outlook for future demand, but rules to align state distribution companies, increase access to pipelines and integrate the electricity sector still need to be hammered out, executives said May 24 during a Gas Week 2021 webinar.

"The New Gas Law is an important mark. It grants legal security, but it needs to be more detailed because the law only provides the general principles," said Sylvie D'Apote, director for natural gas at the Brazilian Petroleum Institute, or IBP.

Executives called on the government, regulatory agencies, oil companies and service providers to continue working together during the country's transition to an open, competitive and sustainable gas market. Brazil faces a Jan. 1, 2022, deadline when gas producers will be allowed to freely sell output in the domestic market, ending state-led Petrobras' monopoly.

The first concrete step should come by mid-2021, when the Mines and Energy Ministry expects to publish regulations surrounding the New Gas Law approved by Congress. Mines and Energy Minister Bento Albuquerque has indicated the measure will be ready by June.

New resolutions will likely follow from Brazil's National Petroleum Agency, or ANP, and state regulators. The ANP will handle regulation of Brazil's gas sector at the national level.

States will play a key role in the transition, with several already moving to liberalize local gas markets and ending control of distribution companies. While states such as Bahia and Rio de Janeiro have already laid the groundwork for an open market, other states were still clinging to the old development model, D'Apote said. That could create bottlenecks to development, especially if state regulations aren't aligned to the New Gas Law.

The federal government oversees production, export, processing and transport of natural gas. State governments, however, are responsible for distribution. Petrobras will also play a part because it must sell its controlling stake in Gaspetro, an umbrella company that retains the company's share in state gas-distribution companies.

"It's very complex, but we need to harmonize state and federal regulations," said Mariano Ferrari, CEO at Repsol Sinopec Brasil.

Potential improvements include more-flexible rules to determine what companies are considered free consumers that can sign purchase agreements with gas producers, executives said. More free consumers would help anchor potential investments in gas projects and lead to a virtuous cycle of growth in suppliers, D'Apote said.

Brazil also needs to implement the entry-exit model for gas transport, allowing producers to deliver gas across Brazil via the country's nearly 10,000 km of pipelines. Petrobras, under terms of the antitrust agreement that ended its monopoly in the gas segment, recently sold off stakes in pipeline networks Nova Transportadora do Sudeste, or NTS, and Transportadora Associada de Gas, or TAG.

Oil companies will need firm, steady pipeline capacity available for gas output in order to deliver supplies to market, executives said.

Brazil also needs to better link the power generation and gas sectors, which could prove beneficial to both, D'Apote said. Brazil needs gas-fired power plants in its generation base to meet electricity demand, especially during dry weather that undercuts generation from the country's hydroelectric dams. Reform efforts have so far been met with resistance amid concerns about higher prices.

Not only are the rules changing in Brazil, but the coronavirus pandemic also accelerated the world's transition toward a low-carbon environment, executives said. Gas can help Brazil develop economically as well as aid in its domestic transition.

"Brazil is living through a unique window of opportunity to generate value and benefit from its natural resources, which are abundant," said Veronica Coelho, Brazil country manager at Equinor. Coelho urged a "pragmatic" approach to finding solutions that benefit the market as a whole.

"Now, we need to have a more-holistic vision and less distributed from state to state," Coelho said.

______________

By Jeff Fick, edited by Kshitiz Goliya from S&P Global Platts

spglobal.com 05 25 2021
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