With Half Price Drop in Gas, Government Expects Over 10 Percent Growth in Industries

Thinking Is by Paulo Guedes, the Minister of Economy, Who Expects a “Domino” Effect on Industrial GDP

The long-awaited 50% drop in gas prices, as planned by the government, gained significant traction after a study conducted by the Ministry of Economy, Special Secretariat of Finance, and the Secretariat for Evaluation of Public Policies, Planning, Energy and Lottery (Secap) was released.
According to the document released by the MME, the halving of natural gas prices with the creation of the New Gas Market (NMG) would generate an “Energy Shock” that would result in a 10.5% increase in Industrial GDP.

According to the minister, economic sectors will experience waves of growth as early as the first year of declining natural gas prices.
The report shows a table with variations in price drops between -1% and -50%; for example, with a 30% drop in price, GDP would increase by 6.3% in the first year and 4.1% in the second year, declining to 2.8% in the third year and finally reaching 0.22% in the tenth year.

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The opening of the gas market, according to the MME and the Ministry of Economy, will enable free competition with the sale of Petrobras’s assets.
The intention is that without the state-owned company in the distribution and transportation markets, there will be an influx of companies into the natural gas market, reducing final prices, as the government relies on large reserves of natural gas in the pre-salt layer.

Comparison with Abroad

With the opening of the market, the government expects that prices in Brazil will converge with those practiced abroad. Currently, prices are at US$ 14 MM/Btu, and it is expected to fall to around US$ 6 to US$ 7 MM/Btu, close to what is practiced in Bolivia, for example.

Another parameter used was the average price of natural gas in Europe, which in 2018 was US$ 8.84 MM/Btu, and in the United States, which was US$ 3.89 MM/Btu.

Achieving these prices is indeed a challenging goal, but the government counts on Petrobras, which will continue exploring natural gas, along with around 30 other companies, such as Total, Chevron, ExxonMobil, Repsol, which are already consolidated in the gas market or strengthening their position in this market alongside companies like Shell, BP Energy, and Equinor.

The entry of medium and small companies is also important, as they will contribute to exploration in onshore fields, which is significant for consumers located away from coastal cities.
It is with this supply and the reduction of prices for small and large consumers that the government hopes to achieve the economic development of the country, as gas is a fuel widely used by industries.

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