Brazil New Gas Law Policy Brief

4 BRAZIL ’ S NEW GAS LAW

INSTITUTE OF THE AMERICAS POLICY BRIEF

droughts; this is increasingly the case with extreme weather patterns of the last several years. Due to energy security concerns, the dispatch of thermal plants remains fairly common in the country. Furthermore, following global trends that place natural gas as an important energy transition fuel source, the Ministry of Mines and Energy (MME) intends to promote the deactivation of thermal plants powered by coal and fuel by the end of the decade, converting them to natural gas or fully deactivating them. However, the expansion of gas-powered thermal plants may increasingly find hurdles in the future, due to the diversified energy matrix available in Brazil and the expectation that renewable sources, such as solar and wind, will tend to grow. Therefore, the market expects that the demand for gas will shift towards the industrial segment. In 2020, the primary natural gas destinations were industrial sector (43%), power generation (38%) and the automotive sector (9%), with domestic households accounting for only 2% of consumption. Currently, Brazil imports natural gas from nine countries, with Bolivia and the USA heading the list, accounting for 81% of import. Bolivian gas comes via the Gasbol pipeline, while American gas is imported via LNG. In January 2021, Brazil imported, on average, 20.38 million m³/day

By most estimations, Petrobras seems satisfied with this position, as it has long stated its desire to reduce the number of activities involved and focus on core businesses – E&P activities. Who wins? In theory the new gas market should benefit the sector’s entire production and value chain. Ultimately, it could make the Pre-Salt more attractive to investors, given its large associated gas reserves. Uncertainties related to the lack of a guaranteed gas demand have caused the IOCs to postpone the Final Investment Decision in Pre-Salt projects. The Brazilian industrial sector hopes that the law can promote the country’s reindustrialization based on more competitive energy sources. For the chemical industry, which is the largest industrial consumer of gas in the country, it can account for 80% of production costs, thus making production unfeasible at current prices. The electricity sector should also benefit from the new market model given demand for natural gas for thermal power plants. Even though hydropower dominates most of the Brazilian electrical matrix, hydrological risk is always a possibility due to seasonal

April, 2021