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MME Secretary: It Is Necessary to Reduce Costs Across the Natural Gas Chain to Boost the Gas for Employment Program.
One of the challenges faced in Brazil today is the issue of access costs to natural gas infrastructure. The Secretary of Oil, Natural Gas, and Biofuels of the Ministry of Mines and Energy, Pietro Mendes, emphasized that these costs make gas-chemical projects, such as fertilizer plants that use gas as a raw material, unfeasible. This scenario was discussed during his participation in a public hearing at the Commission on Mines and Energy (CME) of the Chamber of Deputies.
The Secretary pointed out that even if natural gas were obtained for free, the estimated cost of flow and treatment is US$ 7.4 per million BTU, which already makes the feasibility of projects in the gas-chemical sector unviable.
Moreover, the situation requires attention to issues related to gas distribution facilities and infrastructure, which directly impact logistics and flow networks. These are factors that need to be considered to seek solutions that make gas-chemical projects viable in the country.
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Therefore, it is essential to seek alternatives to reduce costs and optimize natural gas infrastructure in Brazil.
The Reinjection of Natural Gas and the Country’s Infrastructure
The Secretary of the Ministry of Mines and Energy (MME) presented, during the hearing, the preliminary results of the working groups of the Gas for Employment program – which promises to increase the supply of gas at competitive prices for the reindustrialization of the country. The reports with the conclusions of the technical discussions are pending for 2024.
Pietro Mendes highlights that one of the first bottlenecks identified in the Gas for Employment program was the difficulty that Pré-Sal Petróleo S.A. (PPSA) has in selling the gas that belongs to the Union in the sharing contracts ‘beyond the head of the well’. The costs of accessing infrastructure for flow and processing are among these difficulties.
According to the MME, gas currently reaches the final consumer at a cost of US$ 20 per million BTU, but the price of the molecule itself accounts for around 23% of that value. The rest is the cost of infrastructure (flow, processing, transport, and distribution) and taxes.
‘We need to advance in the other stages of the chain to reduce the cost of gas’, Mendes argued.
‘Having to pay US$ 7 per million BTU [for flow and processing] reduces the attractiveness of exporting gas and makes reinjection more economically [appealing]’, he added.
The MME Secretary states that in the discussions of the Gas for Employment program, a series of factors were identified that hinder and increase the cost of accessing gas infrastructure today.
In Flow and Processing:
- lack of transparency regarding access to facilities, such as information on available capacity;
- no definition on remuneration for access to infrastructures, nor clarity on costs, depreciation, and operation of assets;
- lack of clarity regarding the process of expansion of existing capacity by third parties;
- no planning for the expansion of existing capacity or construction of new infrastructures;
- lack of coordination among offshore field operators for the construction of flow pipelines and processing units;
- there is a stacking of costs from all links in the chain; and these costs are high;
- there is little or no room for negotiation of more flexible (short-term) contracts and penalties; and these penalties are often disproportionate and cumulative (they propagate to other links);
- these penalties turn into revenue for the owner, without translating into system improvement;
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In Processing, Specifically:
- there is practically a single large buyer of natural gas liquids, which purchases loads at discounts;
- operation is complex and risk is borne by third parties that access the infrastructure;
- there is no negotiation for access to refineries;
- processing is not contractually integrated (i.e., the access contract is by UPGN)
And in Transportation:
- lack of predictability in defining return rates (WACC);
- undefined values for Regulatory Asset Bases (BRAs)
- no tariff review process has taken place
- risks of by-pass of supply sources (thermal exits, construction of isolated plants from the system) and high risk of tariff increases;
- high penalty costs
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Source: EPBR
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