Private gas suppliers in Brazil face hurdles to grow market share – Abegás

Private gas suppliers' share of Brazil’s non-thermoelectric market is unlikely to grow beyond the current 10% if market conditions remain unchanged, Marcelo Mendonça, the strategy and market director of gas distributors association Abegás, told BNamericas. 

"Brazil needs to increase supply in order to diversify the suppliers. And that depends on the viability of new routes for natural gas flows, processing units, and new transportation and distribution pipelines,” he said. 

In Mendonça’s opinion, the debate is not even a political issue. 

“In fact, the market was not doing well before under the former PT [workers party] government, nor in the Bolsonaro administration. What we need is to correct the courses of action,” he said. 

In 2019, state-run company Petrobras signed an agreement with local antitrust authority Cade to sell mid- and downstream gas assets to enable competition with private players. 

And, in April 2021, Brazil approved a new regulatory environment designed to liberalize the industry, attracting private investment and reducing prices.

Despite the initiatives, Petrobras still has a dominant position in the supply of natural gas and liquefied natural gas (LNG) and is the owner of most of the infrastructure needed to make the fuel available to distribution utilities. 

Meanwhile, the rapid vertical growth of ethanol and sugar producer Cosan is raising concern in the market. The company already controls the largest gas distribution concessionaire in the country, Comgás, and the Brazilian group has also bought Gaspetro, which holds stakes in several gas distribution utilities, as well as Sulgás in Rio Grande do Sul state. 

According to Mendonça, LNG is basically the only new source of gas supply in Brazil, which leaves the country in a vulnerable position, particularly in times of geopolitical turbulence. 

“These are spot contracts that serve flexible thermoelectric plants. We can't wait for the next hydro crisis to try to solve the problem,” Mendonça said. 

Brazil produces approximately 130Mm³/d of gas, but over half of domestic output is reinjected to recover more oil, mainly because of the lack of offshore pipelines to take the production to shore. 

A new offshore route, Rota 3, is planned to come online in 2024, adding 21Mm³/d of gas transportation capacity. 

The domestic market is also partially supplied by Bolivian gas, but, due to the prospects of production decreasing in the Andean nation, Brazil is seeking alternatives, such as bringing more from Argentina. 

STATUS OF CONTRACTS

Last Friday, independent Brazilian firm PetroRecôncavo signed a contract for the sale of natural gas with Sergipe state distributor Sergas (Sergipe Gás).

The 10-year deal has a firm, flexible and interruptible modality, with expected volumes of 50,000m³/d of natural gas in the second half of 2023 and 100,000m³/d from 2024 to 2032.

In the interruptible and flexible contract mode, the supply and withdrawal commitments are only established by prior agreement between the parties, with demand on the part of the distributor and availability on the part of the supplier.

The beginning of supply is conditional upon the signing of a contract between Sergas and Transportadora Associada de Gás (TAG) for the transportation of the natural gas, corresponding to the outputs of the delivery points determined by the buyer, a point that is still being negotiated.

PetroRecôncavo also has gas supply contracts with Bahiagás in Bahia state, Cegás in Ceará state, PBGás in Paraíba state and Potigás in Rio Grande do Norte. 

Other private players that have inked contracts with Brazilian distributors include 3R Petroleum (Bahiagás), Alvopetro (Bahiagás), Compass Gás e Energia, which is part of the Cosan group (Comgás), Eagle E&P (Bahiagás), Equinor (Bahiagás and Cegás), Galp (Bahiagás, Cegás, ESGás, Gasmig, Potigás, SCGás and Sergás), New Fortress Energy (SCGás and Copergás), Origem Energia (Algás and Bahiagás), Shell (Bahiagás, Cegás and Copergás) and Tradener (Compagás and SCGás). 

TAG CONTRACTS 

TAG has signed 35 new contracts with 15 shippers around Brazil, effective as of January 1. 

Added to the annual and short-term contracts, about 6.6Mm³/d of entry capacity and 7.1Mm³/d of exit capacity were allocated in the December 2022 bidding rounds.

According to the gas transporter, this year has brought even more diversification to its portfolio through contracts with economic groups from different sectors such as 3R Petroleum, PetroRecôncavo, Origem Energia, Galp, Shell, Equinor, Cegás, Bahiagás, Refinaria de Mataripe (Acelen), Proquigel (Unigel) and Petrobras.