Opinion: To develop the natural gas market

February 18, 2019

Large production growth is believed to result in lower prices due to competition

The current government has invested in the potential of pre-salt gas to reduce the cost of energy in Brazil. For Minister Paulo Guedes, the resumption of sustainable growth involves the reindustrialization of the country, based on the increased competitiveness of Natural Gas (NG) offered to energy-intensive industries. It is believed that the large growth in gas production will result in lower prices due to competition between producers.

There is no doubt that national gas production will grow at an accelerated rate. In the pre-salt alone, this production should jump from 73 million cubic meters per day (MMm³ / day) to 130 MMm³ / day in 2030. Even considering the untapped potential of the pre-salt, the potential gas supply may reach levels well above the volumes mentioned above. However, there are major challenges for this production to become a gas supply to the market.

Pre-salt gas is associated with oil, and producers have the alternative of re-injecting the gas in their fields. In order not to do so, companies need to invest the equivalent of US $ 2.5 billion for each route (20 MM m³ / day) of gas flow. However, they need market guarantees before approving investments of this magnitude. In the absence of a clear market, the reinjection decision is the only alternative. So, it is crucial to unlock and organize the natural gas market to create the alternative of commercial gas supply.

The country needs to develop anchor projects to make new pre-salt routes viable. It is the purchase contracts for the anchor projects that can make the large investments in infrastructure to monetize the gas viable.

Thermoelectric generation is the natural anchor to enable the expansion of gas supply, but thermal power plants can only provide firm guarantees of purchase if they win the auction of energy contracts organized by Aneel. In this case, the oil project development schedule is at the mercy of the schedule and the result of the auctions.

Even if there is a synchronization of the decision processes, there is a great risk associated with the delay in the execution of the projects. This risk is a major disadvantage for the gas put option when compared to reinjection.

Through appropriate policies, it is possible to promote the commercial use of an important portion of pre-salt production in the domestic market and also for export. Thus, the creation of multi-purpose coastal terminals, involving different activities, can be an innovative alternative. Especially when one takes into account that this volume of gas will generate a new market where its competitiveness will be a determining factor to stimulate industrial consumption.

Finally, it is emphasized that the exploration and production projects of the pre-salt oil sector are made possible with the production of oil and that the associated NG is conditioned to the technical-economic logic of the production of this oil and that its offer must be conditional on firm demand that is the basis for sustaining an internal consumer market. Or, inevitably, new economic alternatives should be sought, including reinjection, which today points to volumes that represent 80% of the current internal availability of NG, in November 2019.

Source: O Globo

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