May 2019 – @alvaroriosroca – The monopoly deployed for approximately a decade and a half by Petrobras in the entire chain of the natural gas industry in Brazil, everything indicates, is coming to an end. End users of all kinds (mainly industrial), as well as current and new natural gas producers are pressing for legal and regulatory measures to end Petrobras’ monopoly. This is done through the sale of assets and opening up to competition.
The measures are also aimed at eliminating or reducing the participation of States in natural gas distribution companies, allowing independent or free customers to have free access, lowering heavy taxes that are levied throughout the chain and integrating natural gas with electricity and the industrial sector through competitive supply tenders.
The primary objective is to reduce natural gas prices to end users through competition from gas produced in Brazil, imported LNG and Bolivian gas and that this gas can be accessed under free access to processing plants, pipelines, LNG plants (with national regulation by the ANP) and gas distributors (with State regulation).
Natural gas prices in Brazil are one of the most expensive in the world. These high prices (also of electricity) have led to the index of industrial transformation as a percentage of GDP falling from 17% in 2008 to 11.5% in 2018. Prices during 2018, delivered to industry in Brazil are on average 11 to 12 USD/MMBTU, while in the USA they are 3 to 4 USD/MMBTU, in England from 7 to 8 USD/MMBTU and in Argentina and Peru from 4 to 5 USD/MMBTU. In summary, industries in Brazil lose global competitiveness due to high gas and electricity prices.
The Ministries of Economy, Mines and Energy, the National Petroleum Agency, Empresa de Pesquisa Energética (EPE), and the Petrobras presidency are waging a powerful battle against Petrobras’ middle management to get these legal and regulatory measures approved. For now, the Administrative Council of Economic Defense (CADE) will be the nucleus where this hard battle will move.
If this entire initiative, driven mainly by all the powerful industrial guilds in Brazil, succeeds, Petrobras will probably have to sell assets in regasification terminals, in separation plants, in the remaining transportation pipelines, and finally its participation in natural gas distributors. States are also being forced to sell their stake in these distribution companies and to limit their role to regulating them.
Remember that Petrobras continues to be one of the most indebted companies in the world. The sale of assets, not only natural gas, but also refineries, fertilizer plants and others will be used to reduce this huge debt and will allow you to focus your investments on offshore exploration and exploitation.
International traders and LNG exporters from the USA, Trinidad and Tobago and other countries are very active in this process, and will have to compete against gas produced mainly in the Pre-Salt, which, depending on the CO2 content, is very competitive.
Bolivia must look closely at this process of opening and transformation in Brazil and have market intelligence of what natural gas producers and LNG importers offer and will offer. It will have to compete and do so with its current declining reserves and production capacity and with new reserves and production capacity that may appear of ongoing exploration in the next 24 months.
There are profound changes in the natural gas and electricity markets in the Southern Cone. As in the theory of the “Evolution of Species” the one that does not adapt does not survive.
* Former Minister of Hydrocarbons of Bolivia and Current Managing Partner of Gas Energy Latin America