August 2021 – @alvaroriosroca – The natural gas market in Brazil is undergoing a profound and advanced reform. This is in order to leave behind the drying monopoly exercised by Petrobras in the whole chain, which resulted in devastating prices. It is enough to point out that an industrial user in the USA used to pay between 3 to 5 USD/MMBTU, one in Italy (with imported gas) between 7 to 9 USD/MMBTU and paradoxically one in Brazil between 9 to 12 USD/MMBTU.
Now the natural gas sector is getting ready for Petrobras to get out of all the links in the chain and dedicate itself to commercializing the gas it produces. It is also completing the privatization of almost all of its assets. This removes its role of aggregator or wholesaler that it exercised in the past and that now President Bolsonaro would like to have up his sleeve to be able to bring gas from Argentina through the south, as we will see below.
We all know that Bolivia’s natural gas production capacity is in sharp decline and that Brazil needs to replenish these volumes, and even more so to increase its demand with the reforms that are being introduced with alternative sources of natural gas supply. What options do Brazilian demanders or users have?
They have the option of pre-salt gas. This is a gas associated with oil, which has supply conditions with little flexibility, often with high CO2 content, production is very far from the coast, and heavy new investments are needed, resulting in high transportation costs. Finally, Petrobras is no longer obliged to supply the Brazilian market and will do so when it suits its economy.
The other option is that they can opt for more imported LNG as they have been doing. To date there are 5 regasification projects in operation, 4 with FID to start up between 2022/2023 and 7 projects under study. The regasification capacity at the end of 2023 will be 158 million cubic meters per day (MMMCD). This compares to the transportation capacity from Bolivia of 30 MMMCD (19%). Unthinkable only a decade ago.
The other alternative is the gas already discovered (shale) in Vaca Muerta, which with efficient exploitation and scale can achieve lower production costs as has already been demonstrated. Production can be raised very quickly as demonstrated by Tecpetrol, which in 12 months increased from 3 to 16 MMMCD. If a single operator can do this, imagine several operators together could undoubtedly serve a large part of the growing and dynamic market of Northern Argentina and also Brazil.
There are two options to get this Vaca Muerta gas to Brazil. One is through the south (Uruguayana) with dreadful new investments in transportation infrastructure close to US$ 4,500 MM. The questions that arise are: Who will anchor the demand? Who will play the role of aggregator? Who will finance the necessary transportation infrastructure? Petrobras no longer fulfills this role, as we have already stated.
The economic, reasonable, timely option, which requires much smaller incremental investments, is to move gas northward from Vaca Muerta and use infrastructure that will be left with idle capacity in Bolivia and Brazil. With an investment of around US$500 to US$600 MM it is possible to reverse and increase capacity to TGN in the north of Argentina. At the end of the day the northern fields in that country are declining and Bolivia’s delivery capacity is decreasing. The TGN will be reversed sooner rather than later in one way or another.
And if we get smarter and get subway gas storage in Bolivia we can play with efficient supply and optimize Argentina’s winter peak demand with Brazil’s electricity demand. And if Bolivia resumes new exploration it could continue supplying this market in the long term.
If we do not act along these lines and in a timely manner, the Bolivia-Brazil gas pipeline on the Brazilian side (TBG) will be partially reversed and the market will be left in the hands of competitive imported LNG and Pre-Salt gas. The Bolivia Gasyrg, Yabog, GTB and GOB pipelines will not receive transportation revenues and finally Argentina will not receive revenues from gas sales to the growing Brazilian market and also take advantage of the opportunity to bring it to northern Chile. Will we cede it to LNG just like that?
A quick cost benefit is that the region would stop receiving in 10 years 3,000 MMUSD in transportation of infrastructure already built and Argentina would stop receiving almost 10,000 MMUSD in gas sales and gas transportation, ceding a large part to imported LNG. So much to rinse our mouths with the famous energy integration. That is why we believe it is time to act.
*Former Minister of Hydrocarbons of Bolivia and current managing partner of Gas Energy Latin America.