November 2023, Vol. 250, No. 11
Features
Brazil Midstream Hopes for $20 Billion Infusion by 2028
By Eugene Gerden, Contributing Reporter
(P&GJ) – The Brazil gas and pipelines sector hopes to attract about $20 billion in investments for its development by 2028, thanks to de-monopolization of the industry and the adoption of new legislation, according to recent statements, made by leading market participants and state analysts.
As part of these plans, most of these funds will be invested in the gas pipeline sector, through the building of new pipelines and expansion of already existing ones.
In general, the Brazil federal government estimates an expansion of the country’s land gas pipeline network of 1,056 miles (1,700 km) over the next few years, requiring investments of $3.95 billion (R$17 billion).
With this, the Brazil national natural gas transportation network would increase by approximately 20%, from the current 5,840-6,897 miles (9,400-11,100 km). The expansion would involve both the construction of new routes, the expansion of existing sections and the interconnection of new fuel processing terminals.
Implementation of these plans is important, given the generally low level of development in the Brazil gas market and its transportation segment. Brazil has a smaller transport pipeline network than neighboring countries, such as Argentina. The country also currently has about 4% of Europe’s network and 1.9% of the United States’ network.
The gas market began to gain more importance in Brazil with the construction of Gasbol (a Bolivia-Brazil Gas Pipeline) in 1997. The energy sector progressed with Gasbol, increasing the share of natural gas in the Brazilian energy matrix from 3% in 1999 to 6% in 2010. With the growth in national production, these figures exceeded 13% in 2023.
Brazil is a major oil exporter, but natural gas still faces many challenges, as 90% of the natural gas produced and sold in Brazil comes from fields associated with oil.
Historic Problem
In the case of Brazil’s transportation segment, the lack of gas pipelines has been historic problem for the country. Brazil has a poor gas pipeline network, when compared to Europe or the United States. This was mainly due to a lack of investments in the sector, caused by imperfect local legislation and the near-monopolistic position of Petrobras, which almost completely controlled both production and transportation of hydrocarbons in Brazil.
Due to this and other factors – according to analysts – the gas transportation industry spent 10 years with virtually no investment in new pipelines. This is also confirmed by official statistics from Abegás (Brazilian Association of Piped Gas Distributing Companies), according to which, the gas transportation pipeline network in Brazil stopped growing in 2013. In the last 12 years, there was an increase of just 1%, although distribution infrastructure grew by 107% in the same period.
The situation, however, began to change with the adoption of the so-called “Gas Law,” which established restrictions in the sector, preventing transporters from having indirect or direct corporate control or even an affiliation with producers. This also led to the start of the Petrobras asset sale process, which, in turn, led to the fact that the sector began to receive its first private investments for the expansion of gas pipeline networks.
Projections from the sector association, ATGás, and companies operating in the segment at present include at least R$20 billion between 2023 and 2028, to be invested in expansions of pipelines and compression and treatment stations.
In the case of Petrobras, the first step for the end of the company’s dominance in the Brazil pipeline sector became the sale of its two largest natural gas transportation networks. The Canadian company Brookfield and Itaúsa purchased Nova Transportadora do Sudeste (NTS), which is the owner of 1,243 miles (2,000 km) of gas pipeline, connecting the largest states in the country of Rio, Minas Gerais and São Paulo.
New Owners
Under new owners, the company announced investments of $3 billion (R$12 billion), over the next eight years, into its expansion. At the same time, the French company Engie took over the Transportadora Associada de Gás (TAG), which operates 2,796 miles (4,500 km) of pipelines between the North and Northeast regions of Brazil. And it has plans to invest $400 million (R$2 billion) over four years. Petrobras still plans to sell the Brazil-Bolivia gas pipeline.
This is just the beginning. Local analysts expect new investment projects in the industry already, until the end of the current year, thanks to a serious improvement of investment climate in the sector.
This has been recently confirmed by Rogerio Manso, president of the Brazilian Transport Pipeline Association (ATGás), in an exclusive interview with P&GJ.
“The implementation of the new Gas Law in 2021 brought legal certainty and significant changes, such as the new authorization regime for the granting of new gas pipelines,” Manso said. “This unlocked new investments. The gas transportation companies tripled the investments announced in their multi-year plans, increasing from 6 billion BRL (2021) to 18 billion BRL (2023).”
In the meantime, a similar position was shared by Heloísa Borges — a member of the Division of Oil, Gas & Biofuel Studies, of the Energy Research Agency of the Brazilian Ministry of Mines and Energy. She told P&GJ that a number of new investment projects are scheduled for implementation in the Brazil pipeline sector, within the next several years.
“This [Brazil’s] gas pipeline infrastructure connects to 16 natural gas processing plants and the LNG regasification terminals,” Borges said, adding that there are at least three major investment projects, which are planned for implementation in the industry in the short-term.
Those major projects are a pipeline to connect the existing Sergipe LNG terminal to the integrated network, the Itaboraí-Guapimirim pipeline (GASIG-2024) and the GASFOR 2 pipeline.
In addition, there are several projects that involve the expansion of already existing gas pipelines, such as the Route 3 Pipeline (2024) and the pipeline from SEAL Basin (2027) and the BM-C-33 area (Campos Basin — a pre-salt area).
According to Borges, the Brazilian government is working in ways to support decisions and elaborating on studies aimed at promoting the best use of natural gas produced in Brazil. As she has also added, the Brazilian Government’s Gás para Empregar Program presents itself as an example of this.
This program aims to increase the natural gas supply on the domestic market; increase the availability of natural gas for industry and other sectors; and to improve the use of gas production, by reducing reinjected natural gas volumes. All of these objectives may result in the expansion of infrastructure — especially natural gas pipelines.
At the same time, in case of reinjected natural gas, this has become one of the major problems in recent years for the Brazil gas producing and transporting sectors.
Marcelo Mendonça, director of Strategy and Market at the Brazilian Association of Piped Gas Distribution Companies (Abegás) in an interview with Brazil Full Energy magazine has confirmed the importance of this problem.
“Today, due to an infrastructure deficit, Brazil has reinjected more than half of the gas it produces. This year alone, more than 60 million m³ were returned by producers to the fields each day. It’s a lot of gas,” Mendonça said. “To give you an idea, this represents approximately double the average industrial consumption. And this gas has been reinjected due to a lack of infrastructure, especially flow routes for pre-salt gas.”
Energy-hungry Brazil is also popping up on the radar for Argentina, which is building the first phase of a gas pipeline, known as the Vaca Muerta pipeline, to debottleneck production from the Neuquén basin.
Vaca Muerta is one of the largest shale gas reserves on the planet. The Argentine government estimates an investment of US$3.7 billion (R$20.3 billion) between the province of Neuquén, where the deposits are located, and the border with Brazil in Uruguaiana (RS) for the construction of the pipelines.
Particularly high hopes from industry players are sitting on the increase of support from the state, which — so far — has been generally insufficient.
“The transportation sector in Brazil does not rely on state subsidies. Discussions with the regulator are ongoing, and we hope that the announced investments are just the first wave,” Manso said. “With the entry of offshore gas from the pre-salt and post-salt reserves, we anticipate that this expansion will continue into the next decade.”
In the meantime, experts of the Energy Research Company (EPE) remain generally positive on further prospects for the sector, with expectations for growth in natural gas production in Brazil, over the next ten years. According to the EPE’s latest study, the sector’s supply tends to show an increase of 34%, driven mainly by new projects that will come into operation in the country.
The projection also considers international trade, both in terms of import capacity via ships and gas from Bolivia. The expectation is that the volume of gas injected into the Brazil national pipeline network will increase from the current 1.44 Bcfd (134 MMcmd) to 1.96 Bcfd (182 MMcmd) in 2032.
According to the report, the sector’s infrastructure will be expanded with the construction of new natural gas processing units and gas pipelines — especially in the Northeast region, which concentrates the largest number of new suppliers and offers more competitive prices. These changes promise to boost the natural gas market and open new opportunities for the Brazilian energy sector.
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