July 15, 2019
The opening of the natural gas market is expected to take some years to materialize, but the compromise agreement signed between Petrobras and the Administrative Council for Economic Defense (Cade) to reduce the company’s presence in the sector promises to move the private initiative in the short term. According to analysts, companies still have to wait for some details on how they will access infrastructure before deciding to invest in large projects. The expectation, however, is that oil companies are already in search of customers for their gas volumes, keeping an eye on the opportunities to come.
Investors, meanwhile, must seize the moment to capitalize with the round of acquisitions, in the face of the commitment made by Petrobras to sell all its transportation and distribution assets.
“The immediate effect is the change in market expectations. There is a path to openness, the message is clear that it will happen. “The opening begins now, with companies moving in search of new contracts,” says Gas Energy executive director Rivaldo Moreira Neto.
The term signed with Cade stipulates that Petrobras must fully discontinue transportation and distribution by 2021, but also outlines other goals for the short term: the state-owned oil company, for example, will have 90 days to indicate its actual demand for capacity in pipelines transportion, opening the possibility for idle capacities to be offered to the market.
For Luiz Costamilan, the Brazilian oil company’s executive secretary for natural gas, it is reasonable to imagine that carriers will make a public hearing to allocate this available capacity by 2020. “There is already a preliminary reading that there will be capacity available to be offered, “he said.
This opening of the transportation infrastructure, according to Wood Mackenzie gas analyst Mauro Chavez, unlocks an important bottleneck in the market and can bring short-term business opportunities, as state-owned distributors, with Petrobras gas purchase contracts maturing in 2020, are promoting joint public tenders for the selection of new suppliers.
“Other agents will have access to transportation and will be able to offer in the public tender.” We can expect new players besides Petrobras.Today, there is gas available in Bolivia, opportunities to import liquefied natural gas [LNG]. Discovering gas will have more monetization options available, “he says.
Not all changes, however, will have an effect in the short term. Petrobras has promised not to buy more gas from third parties, which opens up space for its partners in the fields of production, especially the pre-salt, to seek a market for their volumes. The expectation, however, is that contracts between state-owned and third parties will end in the first half of the next decade. Currently, Petrobras accounts for 77% of the gas produced in the country, but is practically the only relevant supplier in the market, because other companies see difficulties to reach the consumer and choose to sell their gas parcels, at low prices, to the state .
The reform of the gas regulatory framework is today the main point of the oil companies’ agenda. Unable to access the market, companies ended up opting in the new projects to reinject the gas in the reservoirs, to increase oil production. Carcará, operated by Equinor, in the pre-salt, for example, will not offer gas to the market. And the fear is that projects essentially focused on gas production, such as Pão de Açúcar, also of the Norwegian company, will not be viable due to lack of a commercial destination for gas.
Time flies. Consultant Wood Mackenzie points out that the capacity of existing offshore pipelines (routes 1, 2 and 3) should be depleted by 2024 or 2025 and that investments have to be made urgently to expand the infrastructure, as construction requires an average of five years.
“The direction of the government is correct, but there are still some definitions as to how third-party access to pipelines and processing units will be provided.” Such an investment decision-making is not simple. Negotiated, in the design phase, but there are still no clear rules for access to the pipelines, “says Marcelo de Assis, Head of Exploration and Production at Wood Mackenzie in Latin America.
The consultancy warns that if discoveries have been confirmed in the auctioned areas between 2017 and 2018, the gas may not reach the market if there is no infrastructure defined quickly.
“We do not see structural changes in the short term without the definition of access to infrastructure,” said the director of strategy and market of the Brazilian Association of Piped Gas Distribution Companies (Abegás), Marcelo Mendonça.
Costamilan, in turn, says that it is not enough for Petrobras and the federal government to move forward with pro-opening measures. The IBP secretary also calls on States to revise their regulatory frameworks to create a more favorable environment for the free gas market.
“It is the free market that will give an effective condition for opening up the market, giving new options to customers for producers, in addition to distributors. There is a relevant role for the states in this regard,” he argues.