Proposals for gas in Brazil: a view from BNDES

May 25, 2020

The BNDES is proposing a discussion on business models that make the investment in infrastructure for the disposal of natural gas produced in the pre-salt possible, and one of the ideas is the development of an intermediate market for operators of the routes that connect the offshore fields to the market, on land.

– “The report proposes a new business model in Brazil for the disposal of natural gas: the construction of gas pipelines shared by oil and gas companies, possibly operated by third parties that are not producers.

Simply put, oil and gas operators would connect their producing fields to a hub on the high seas to transport their production through a large-scale gas pipeline to a natural gas processing unit on the continent or in shallow waters “, quote Fábio Abrahão and André Pompeo.

– Fábio Abrahão is director of Infrastructure, Concessions and PPPs at BNDES and André Pompeo is manager of the Gas, Oil and Navigation Department at BNDES. Together they Sign the article Proposals for gas in Brazil: a view from BNDES, published by EPBR:

Proposals for gas in Brazil: a view from BNDES

 Fábio Abrahão and André Pompeo propose a new business model in Brazil for the flow of natural gas

The current scenario of confronting the pandemic of the new coronavirus requires measures with immediate application, which the BNDES has taken together and coordinated with public and private entities. In parallel, we cannot do without a vision of the future that will enable the country to continue implementing the bases for sustainable development.

Natural gas is one of the themes that make up the BNDES ‘strategic agenda. The bank seeks to act as a catalyst for the development of this market through constant dialogue with government and private agents, as well as the structuring of actions that enable the implementation of long-term projects. The BNDES Gas for Development report, which the Bank launches this week, is part of this initiative and points to a positive outlook for investments, value creation, wealth and jobs in Brazil.

The large pre-salt reserves can be an additional source of wealth for the country, where natural gas has little weight in the energy matrix. Currently, 40% of the supply is reinjected, exceeding 40 million m³ / day, and is expected to reach 60 million m³ / day in 2023, with the entry of new fields into production. Approximately 60% of this volume – an amount equivalent to that of the Brazil-Bolivia Gas Pipeline – could be made available to the market, if there was a flow infrastructure. This motivated the analysis of the natural gas value chain by the BNDES based on field research with companies, class associations, federal, state and municipal government institutions and in the literature. Here we present a summary of the structuring axes of this study, including flow infrastructure, transport, distribution, consumers in industry, in thermo-generation and in transport for heavy vehicles.

The report proposes a new business model in Brazil for the disposal of natural gas: the construction of gas pipelines shared by oil and gas companies, possibly operated by third parties who are not producers. Simply put, oil and gas operators would connect their producing fields to a hub on the high seas to transport their production through a large-scale gas pipeline to a natural gas processing unit on the continent or in shallow waters.

With the distribution of investment by several agents, economies of scale and reduction of the project’s risk, the construction of shared infrastructure would favor the access of more production fields to flow pipelines and the reduction of the levels of injection of natural gas in the reservoirs. This expansion of the offer would contribute to the dynamism and competitiveness of the market, making it possible to reduce the price to the final consumer.

Investments in expanding the country’s natural gas flow infrastructure, which is expected to be saturated in the second half of this decade, demand a long-term structuring and implementation and the coordination of several agents. Therefore, feasibility studies need to be started in advance.

Gas distribution, another structural axis of the chain, fulfills the roles of: (a) monitoring demand, prospecting new customers and new markets; and (b) providing capillarity to the infrastructure, allowing the saturation of the network and the diversification of the customer base.

The study details the natural gas distribution market in the country, which is also undergoing structural discussions at the moment, either due to the expected corporate restructuring / privatization of state distributors, or due to the likely changes in regulation.

The industrial sector is the main firm consumer of natural gas in Brazil. It accounted for 35%, on average, of the annual consumption from 2006 to 2018, being able to consume about 80 million m3 / day in 2030. Therefore, together with the electricity sector, it plays a fundamental role at the demand end.

The chemical, ceramic, steel and paper and cellulose industries account for two thirds of demand, when considering energy consumption, electricity cogeneration and use as raw material. In Brazil, the non-energy use occurs by the chemical industry, in the production of nitrogen fertilizers and methanol.

One way to complement the steady demand for natural gas is through thermoelectric plants, especially those with less flexibility. In the country, the base of the generation system is composed mainly of renewable sources, with natural gas acting only as a back-up. A gas thermoelectric plant, even if small or medium, could contribute to the feasibility of implementing a gas pipeline network where there is also a pent-up demand for gas in the industry.

In transport, the focus was on the use of vehicular natural gas (CNG) in heavy vehicles. Manufacturers in Brazil already produce gas vehicles for export here. There is no technological obstacle to the use of gas as fuel in trucks and buses. The main challenges to make this demand viable are the lack of infrastructure for CNG stations and the price of the gas vehicle, which is higher than that of diesel vehicles.

The study approached cargo transportation, mapping the volume of traffic, vis-à-vis the location of the natural gas distribution networks and CNG stations, estimating a demand, by the carriers, between two and 12 million m3 / day. It also brings a reference to the European project of the “blue corridors”, which demonstrate the viability of natural gas in transporting cargo over long distances.

It also highlighted the municipal and metropolitan public transport by bus, whose estimated fleet is 115 thousand vehicles and accounts for 42% of trips made in motor vehicles. The use of gas in part of this fleet would contribute significantly to the improvement of air quality in metropolitan regions, with a positive impact on the environment and public health, since, in relation to diesel engines (Euro 3), CNG engines emit 93% a less of carcinogenic particulates.

BNDES participated in the establishment of the natural gas market in Brazil, financing the construction of transport pipelines and the distribution network, as well as natural gas processing units and production platforms. Based on its experience in the segment and its neutral position in the market, the bank seeks to enable a positive agenda to enhance the supply and demand of natural gas, expanding income, generating jobs and collecting taxes, in addition to reducing pollutant emissions, contributing to the improvement of social welfare. Between May 25th and 29th, the BNDES will hold the “Gas for Development Week”, with the launch of the report presented and an online event to debate the development of a new natural gas market in the country.

Fábio Abrahão, director of Infrastructure, Concessions and PPPs at BNDES, and André Pompeo, manager of the BNDES Department of Gas, Oil and Navigation

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