Almost a year after Decree 7,382 by the former President of the Republic Luiz Inácio Lula da Silva, a seminar was held in Brasilia on the challenges of the new regulatory framework for the natural gas industry in Brazil. The event occurred in the last 29, from a joint initiative of the Ministry of Mines and Energy (MME), National Agency of Petroleum, Natural Gas and Biofuels (ANP) and Energy Planning Company (EPE).
The main objective of the event was to discuss with the sector agents the main challenges for implementing the new regulatory framework for the natural gas industry. According to the MME Secretary, Marco Antônio Almeida, there is recognition that Act 11,909 and Decree 7,382 do not cover issues relating to gas regulation, thus requiring additional regulatory acts. According to him, this is a major challenge for MME and ANP. Helder Queiroz, ANP Director, states that development of new resolutions and ordinances and review of regulatory acts in force are essential to bind ANP rules to the new industry’s regulatory framework.
Among the items to be covered by additional regulatory acts, we have to mention public bidding and third party access procedures to pipelines, bidding process procedures for new gas pipelines, effectiveness of the concession, aspects related to storage, criteria review for calculating transportation tariffs and review of ANP ordinance 170/98, gas exchange regulation, procedures for authorizing gas loading activities, and drafting of Transport Network Expansion Plan (PEMAT)
However, some important elements seem to be off agenda for discussion, such as the distinction between gas pipelines and gas distribution pipelines, development of an inventory of the potential for gas storage in underground reservoirs, and the clear definition of self-producer, self-consumer and free consumer, in order to delimit the scope of work of federal and state regulation.
Regarding the PEMAT, there are still many uncertainties, especially as regards the time for preparing it. According to EPE president, Maurício Tolmasquim, though it is being made every effort to prepare the PEMAT there is no expectation of preliminary studies for public consultation. According to Tolmasquim, the preparation of the PEMAT requires overcoming a series of challenges relating to both estimates of demand and supply of natural gas.
In relation to market research (demand) the main obstacles to be overcome by EPE are identifying and organizing information for future demands for natural gas from the development of a computerized system that allows local distributors to inform safely EPE their estimates of market growth, improvement of methodology of regional and sectoral disaggregation compatible with the national economic scenario, development of a methodology to estimate the potential demand for natural gas not identified by agents, improvement of methodology for building competitiveness scenario of natural gas in relation to other sources, according to location or region, the development of a methodology and criteria for planning service centers of potential demand for natural gas, development of a methodology to quantify the impact of investment in the expansion of network on new investment and additional demand for natural gas in the local economy, and the coordination of primary researches for segmented potential market.
With regard to studies of supply, the main challenges of EPE are to estimate the future production of the fields in production and development; estimate contingent resources (in evaluation), analyze the production potential of the reserves of unconventional gas, and evaluate the domestic industry’s capacity to provide the necessary equipment to meet the local requirements.
According to Tolmasquim, the above factors explain the complexity for preparing PEMAT and justifying the relative delay in the process. In fact, it is extremely important that the potential balance of supply and demand for natural gas is consistent and following the scenarios of economic growth and national development policies. This is because the high competitiveness of natural gas in relation to other fuels makes the availability of gas in a specific location inducing the consumption growth. In economic terms and in relation to natural gas, supply creates additional demand associated with the availability of resource.
Another important point raised at the seminar concerns the electric industry and gas industry interaction. As in the USA and Europe, the thermoelectric generation sector represents in Brazil a large portion of the natural gas consumption matrix. According to ABEGAS data (2011), the total consumption of industrial sector in the COMGAS concession area of (which comprises about 80% of industrial products from state of São Paulo) in 2010 reached a daily average of 9 million cubic meters (MMm3/d) while a single Araucária thermal unit, for example, has the ability to consume 2.1 MMm3/d.
The above data show the importance of thermoelectric generation sector for the natural gas industry. Thus, it is important that EPE guides its planning efforts for the electricity sector (transmission capacity auctions) and preparation of the PEMAT. The integrated planning of both sectors will reduce the idle capacity of the gas pipelines, thus avoiding a misallocation of resources.
At this point, it is not clear whether there is coordination between the planning of the two sectors. Therefore, it is essential that the importance of natural gas thermoelectric generation as support for developing natural gas market and relevance of thermal unit’s consumption (due to their high scales) in the economic feasibility of gas pipeline projects not to be reduced.
Despite the several uncertainties, the event held on November 29 was important to show the various agents of the natural gas industry that a joint effort has being made between the various institutions responsible for regulation and planning of the sector in order to cover the gaps remaining in the regulation of natural gas. As positive aspect, ANP demonstrates clearly a concern with transparency on the preparation of regulatory acts. According to Helder Queiroz, Agency Director, all ANP regulatory acts will be available for public consultation. All stages of the process will be followed even if it means more time for approving regulations.
Finally, the large number of agents attending the event and the diverse composition of the audience showed a great concern and apprehension of the market and other public and private institutions in relation to development of natural gas industry regulation. In this context, it is important that MME, ANP and EPE hasten carefully the process of standardization in the industry. High levels of uncertainty eventually limit private investments and thus the pace of development of domestic natural gas industry.