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Monica_55905 May 07

How Will the New Gas Law Transform Brazil’s Market

How Will the New Gas Law Transform Brazil’s Market image
Originally broadcast on Thursday 6th May 2021, the Digital Broadcast "How Will the Much Anticipated New Gas Law Transform Brazil’s Gas Market and the Region?" brought together public sector from Brazil and some of the world’s biggest names in the gas industry to discuss the impact of the latest Brazilian Gas Law.
A new energy horizon has been laid in front of Brazil following the introduction of its new law and regulatory framework for the natural gas sector.

Announced on March 16, the welcomed news followed almost five years of planning, upon realising that barriers to outside impetus and private investment would not be conducive to the country’s decarbonisation goals.

Especially following a year that has emphasised the need for greater flexibility, and for Brazil to become more of an open driver of wider regional integration, the law paves the way for an exciting future of economic growth.

In fact, the outcomes and results of this framework are expected to yield an increase in investment to the tune of around $6 billion, according to Alfonso Blanco, Executive Secretary at OLADE.

“There are still barriers and things to critique, but it is a pertinent time for this framework to be discussed,” he said. “On the one hand we are talking about a more competitive market, but growth still depends on private investment, and how different ecosystems are able to capture that investment. This is what we will need to see developed, as different interpretations, fuel classifications, and opportunities evolve.”

More tools for competition

Before looking forward, however, it’s also important to look back at what Brazil is transitioning from in regard to its gas makeup.

In this regard, Aldo Barroso Cores Junior, Director of the Natural Gas Department for the Ministry of Mines and Energy in Brazil reminds that, until a short time ago, the market was verticalised through the influence of Petrobras, all the way through the energy chain.

“This created barriers from others entering. It was a complete monopoly, and really there was no signal that this situation would change,” he explained.

“However, this began to change from 2016, and momentum gained more strength in 2019, to remove these barriers and have more private agents investing in Brazil’s infrastructure.”

Encouraging broader participation when it comes to imports, commercialisation, transmission, distribution and key natural gas projects is commonplace in Europe, and the same de-verticalisation is now being targeted in Brazil.

“It’s a great victory, with the new framework also written and discussed with different private participants to ensure it has been well accepted by all. It’s a milestone for Brazil – it simplifies transport, brings more legal certainty, and provides more tools for competition,” Barros Cores Junior added.

Making advancements quickly

In terms of its function, the new gas law intends to construct a new transport system, which will need to also remain flexible to the differing import characteristics of countries like Argentina and Bolivia. Additionally, it will create a more concerted model for private entities to both enter and exit the country and the sector.

Of course, for each step and stage, new codes will be needed, and the hope is that a decree and the initial guidance around this law will be introduced later this year.

But even in the short-term, the country is able to forecast what the optimisation of existing infrastructures, and the capitalisation of terminals and pipelines in a more liquid market, might have on the wider economy.

“When talking about this transition, we have the potential of about 40 billion reals through the development of pipelines, and also the creation of around 30,000 new jobs,” said Heloisa Borges, Director of Studies on Oil, Gas & Biofuels, at EPE. “We must now allow the country to capitalise on this natural gas transition.

“It’s essential to our process towards a low carbon economy, and it was always clear we needed to make advancements quickly. Now we are, and we can’t miss this opportunity.”

Celebrating decarbonisation

The tangible and, now official, move away from a one company monopoly of Brazil’s gas infrastructure has perhaps three overriding outcomes. One, for industry in the country and its resultant economic boost, as more jobs are created and more projects come online courtesy of private input. This derives from a second key pillar which is the improved competition, and therefore attainability when it comes to pricing. And ultimately, by driving down prices, the eventual beneficiary will be the consumer.

“We’re working to eliminate barriers of entry and to incentivise competition. And price will be a result of that competition,” affirmed Barroso Cores Junior. “This reduction in price will drive economic activity in Brazil which will generate millions of jobs across the country and in the energy sector.”

This virtuous cycle now needs to be met with practical solutions - those that account for import opportunity in a new regional dynamic. But also, for the potential future role of LNG, and how the framework can be more than just adaptable to existing infrastructures, and actually synergise with them to create a more flexible market.

Blanco concluded: “This law is establishing new conditions and systems for the good of the market, and to encourage participation from different segments.

“It’s a law that promotes renewable energies and decarbonisation, and that pragmatic conception should be congratulated. The challenge now is to set the rules of the game so that investment in the market matches the great potential that the country has.”