July 2023 – @alvaroriosroca – I would like to begin by reminding readers that natural gas is the essential energy source for the long-awaited energy transition and the decarbonization of the planet. There can be no energy transition without giving greater prominence to natural gas.
It is the cleanest, most abundant and competitive fossil fuel for supporting renewable energies (hydro, solar and wind) and replacing the much more polluting coal and petroleum-derived fuels to generate electricity. Additionally, it is the essential energy source for powering industry (boilers, furnaces, etc.) and also for use in maritime and land transportation and of course in commercial and domestic uses. Not forgetting its vital importance as a raw material in the petrochemical industry.
Within this global framework, it is essential for Brazil to have a secure and competitive natural gas supply. For this reason, it has designed and advanced the New Natural Gas Market through Law 14134 (2021). This reform introduces competition and removes the drying up monopoly that Petrobras had, with privatizations, with open access to gas pipelines and other infrastructure and several other reforms, which allow the participation of the private sector, introducing competition to lower tariffs and prices.
Brazil has an electricity matrix that is heavily based on hydroelectric generation. When it does not rain, it requires a strong backup that comes and will come from natural gas generation. In addition, the private sector is investing heavily in solar and wind energy, which also require backup.
This natural gas backup for electricity generation is required mainly when it does not rain and a large part of the solution is being provided and will be provided through the supply of imported LNG terminals, installed on the coasts. This is called flexible gas.
However, the main problem in Brazil is not only the supply of flexible gas, but also the supply of firm gas. That is, the constant demand of industry (ceramics, glass, chemical, petrochemical, cement, etc.) which can be considered firm. On a smaller scale, firm demand is also for commercial, vehicular and domestic uses.
Industry in Brazil has been the main driving force behind the New Market for natural gas in order to introduce competition and lower prices. The industry is demanding this firm gas to produce and compete against imports and promote exports. LNG flexible gas does not have that competitive gas characteristic because it must be brought from far away.
There are only two sources of firm and competitive gas. One is from domestic production, almost all from offshore and in particular from the Pre-Salt. The other is regional gas that must come from Bolivia, which is in decline, and now the alternative is gas from Argentina’s Vaca Muerta.
The new government administration in Brazil has strongly pushed for gas associated with offshore oil to be produced on a firm basis and brought competitively to the market in order to industrialize the country. Well, this pressure has been quickly echoed by producers in Brazil, who do not agree with this position. They have raised their voices to the skies, including Petrobras.
Let’s remember that much of this associated gas needs to be reinjected to maintain pressure and recovery in oil production. Also, this gas has a lot of CO2 that is costly to remove to reach the market. Finally, this gas must go out through expensive subsea pipelines and separation plants that require billions of dollars of investment. Therefore, in my opinion, it is neither so abundant nor so competitive. Let’s see what will come out of this contest.
By 2028 and 2030 Bolivia will no longer be able to deliver firm gas to Brazil. In this line, the only thing left to do is to see how the competitive shale gas from Argentina can be transferred to Brazil. There are two alternatives. Move gas from Vaca Muerta through progressive expansions in the TGN in Argentina and then through the existing pipelines that will remain empty in Bolivia. The former with much lower investments and costs. The other is through Uruguayana, via Potro Alegre, to reach the large industrial market of Sao Paulo. It requires a new pipeline, much higher investments and has much less demand on the route than through Bolivia.
Well guess what? Some governors and state politicians in Brazil are starting to lobby for gas to flow one way or the other to favor their industry, productivity and employment. My opinion is that gas should go where it is most economical to reach the market and that route is through Bolivia. However, this alternative presents more uncertainties because “three stars” must align and the security of supply and recovery of investments are at stake.
The three countries must facilitate regulations so that private parties can negotiate in the purchase and sale of the molecule and pay tolls that make the transaction viable and are not subject to changes or manipulations to what has been agreed over time. We flood our mouths with the word energy integration. Here is the challenge launched. Can we fail again?
- Former Minister of Hydrocarbons of Bolivia and current Managing Partner of Gas Energy Latin America.
