Idea is to review regulation to enable a 25% reduction in cost to industry, minister of Energy says

04/23/2024

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Alexandre Silveira — Foto: Fabio Rodrigues-Pozzebom/Agência Brasil

The Ministry of Mines and Energy carried out a study aimed at identifying opportunities to expand the supply of natural gas in Brazil and found that it’s possible to deliver more than 150 million cubic meters per day (m3/day) in the coming years. The study’s general ideas were unveiled to investors in the sector on Thursday (18) by Minister Alexandre Silveira at the 2024 Gas Week event.

In addition to expanding the product’s supply, the government plans to adopt regulatory measures aiming at flow and processing activities that could reduce the end price by 25%, especially for the industry.

The increase in natural gas volumes delivered to the domestic market would come from ongoing projects and initiatives under study. According to the minister, the acquisition of Argentine gas from the Vaca Muerta region could increase supply by 3 million m3/day. He estimates another 14 million m3 in the Brazilian market with Equinor’s Raia Project. Rota 3, Petrobras’s processing unit in Rio de Janeiro, will contribute another 18 million m3/day. The same volume should be made available with the Sergipe Águas Profundas Project (SEAP).

To deliver a substantial volume of gas, the government will have to implement plans to develop the biomethane market, with a potential supply of 60 million m3/day—the minister compared it with Brazil’s pre-salt oil wealth. Another challenge would be to break resistance to unconventional gas exploration, which uses the controversial fracking process to extract oil and gas from porous rocks underground. In this case, the increase in supply would be 32 million m3/day.

Regarding the 25% price cut, the minister of Mines and Energy argued that the high cost of transportation through maritime gas pipelines that take the product from wells to the coast, as well as treatment in processing units (UPGNs), must be addressed.

Mr. Silveira said the gas comes out of the wellhead, where it is produced, at a cost of $2.86 per million BTU (British thermal units). However, transport stages through maritime gas pipelines and treatment in UPGNs add up to $9.22 (or 46% of the end price). “When it arrives on land, this gas costs the domestic industry $12.08. In other words, it arrives on the Brazilian coast at prices well above the international average,” Mr. Silveira argued.

To that value, according to the minister, there is an additional cost of $2.04 for the onshore transportation gas pipeline and $1.28 for the local piped gas service, reaching the end price of $20.14 per million BTU. “Gas in Brazil has an absurd price. We have identified it, and now we have to discuss how to work towards an updated, safe regulation in the gas flow pipeline. We cannot fail to be transparent in that,” he said.

The government found that gas producers choose to inject gas back into the well as the end price makes commercialization unfeasible. “Today, our production is just over 140 million m3/day, while reinjection exceeds 73 million m3/day,” the minister said. He pointed out that the global industry reinjects, on average, 28% of the gas produced.

“Our gas has to reach the chemical, steel, metallurgy, ceramics, energy industries, and others. It has to reach those who produce wealth and generate opportunities in Brazil,” Mr. Silveira claimed at the event opening.

The minister advocated for a “supply shock” in the sector. “We are going to promote a real gas supply shock, with access to flow and processing infrastructure, thus reducing costs,” he said.

Following the example of the electricity sector, Mr. Silveira said the gas market should have a “monitoring committee,” bringing together authorities from key agencies to hold regular meetings to discuss supply conditions and prices for the product.

“Monitoring supply and demand in the sector will be constant. We will create a monitoring committee to check the progress of works and the entry into operation of relevant projects to ensure national supply,” Mr. Silveira said.

“Brazil will no longer have one of the most expensive natural gas on the planet,” he added.

* Por Rafael Bitencourt — Brasília

Source: Valor International

https://valorinternational.globo.com/