As 2012 gave way to 2013, drought conditions focused the spotlight on Brazil’s energy sector and, more importantly, brought to the fore important questions with regards to the role of natural gas for its energy matrix.

In an effort to assess key issues and foster dialogue surrounding Brazil’s natural gas market, the Institute of the Americas convened a half-day roundtable in Rio de Janeiro on April 11. Participants included government officials, regulators, investors, service companies, operators and several power companies.

Brazil’s natural gas dilemma brought with it both optimism and disappointment with the current state of the sector for many participants. “It’s as if you’re driving a car and you have your brakes on” commented ANP founding Director David Zylbersztajn in his opening remarks at the roundtable.

Not surprising to anyone familiar with Brazil’s energy sector, several speakers emphasized that the country is characterized by its hydroelectric matrix. Indeed, natural gas currently makes up a small percentage of energy consumption. The bulk of supplies is imported from Bolivia and supplemented by liquefied natural gas (LNG) imports largely from Trinidad & Tobago, Nigeria and Qatar. But the country counts important potential reserves of both conventional and unconventional natural gas including onshore fields, as well as offshore basins and the Pre-Salt.

David Zylbersztajn noted that history in Brazil has repeatedly shown a lack of focus and attention on natural gas. To wit, the acclaimed 1995 Oil Law introduced by the Fernando Henrique Cardoso administration excluded the word “gas” from its nomenclature. Despite natural gas’ challenges in Brazil, including the fact that prices are connected to oil and do not necessarily follow electricity as is the case in many countries across the globe, Zylbersztajn spoke of a slow but apparent market evolution and permanent growth for the sector.

Natural gas is an “incipient industry” in Brazil, underscored ANP natural gas Superintendent Jose Cesario Cecchi. But Cecchi added that natural gas now counts for 11 percent of the nation’s energy matrix, a significant increase since the period of the Oil Law in the mid-1990’s when it accounted for roughly 3 percent.

Superintendent Cecchi’s presentation also sought to counter much of the criticism aimed at transportation and logistics for natural gas in Brazil. Transportation infrastructure and natural gas pipelines have seen 150 percent growth over the period 1999-2012, he emphasized.

Beyond the optimism associated with increased infrastructure, many participants debated the dominant role of Petrobras, its de facto control of the sector and its deleterious impact on prices, efficiency and development of the market.
Franciso Morandi, Vice President of AES Brasil, highlighted that beyond just price issues, natural gas allows for a unique dispatchability factor for Brazil’s electric sector and the nation’s broader energy matrix.

Winston Fritsch, president of Brazilian oil and gas firm Petra Energia, pointed to natural gas as an important solution for the increasingly frequent energy crises the nation has endured. He noted that natural gas can and should be the ticket to a more stable energy system for the entire nation, particularly when the incredible potential for gas reserves is considered.

To that end, ANP Natural Gas Superintendent Cecchi also spoke of the regulator’s forthcoming natural gas licensing bid round, round 12, set for later this year. Details on the round are being developed he said, but the auction will include several natural gas – conventional and unconventional – blocks across Brazil.

The fervor for Brazil’s unconventional potential is not dissimilar from other parts of the globe hoping to emulate the energy boom in the United States. But Fritsch of Petra Energia cautioned those who saw replication of the US’s unconventional model as a panacea in Brazil, noting that what the US witnessed was technological innovation rather than geological innovation.

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