Proposal for Short-Distance Natural Gas Transportation Tariff Aims to Reduce Transportation Costs and Encourage Investments in the Central Gas Pipeline Network

The Short Distance Tariff (TCD) Will Facilitate the Monetization of the Expected National Production of the Sergipe Deep Waters (SEAP) Project by Petrobras

An important debate has been initiated in the state of Sergipe (SE), related to the advance of the new natural gas market. On Wednesday (06/22), a proposal for the creation of a short-distance natural gas transportation tariff (“Short Distance Tariff” or “TCD”), which is also known internationally as short haul. was presented to the general director of the National Agency of Petroleum, Natural Gas and Biofuels (ANP).

The Short Distance Tariff is primarily intended for the exclusive transportation of natural gas, which is injected into the network from the Natural Gas Processing Unit (UPGN) or the Liquefied Natural Gas (LNG) Terminal. These facilities are located within a state and are intended for consumption within that same state.

This measure is part of a broader regulatory effort that Sergipe has been implementing to modernize its regulatory framework and develop a varied consumer market, which could pave the way for a more focused economic recovery on the reindustrialization of the state.

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However, it is extremely important to ensure the supply of natural gas and an adequate transportation infrastructure. The Short Distance Tariff (TCD) aims to meet all requirements to reduce transportation costs and, at the same time, encourage the consolidation of investments in the central gas pipeline network.

Short Haul Ensures Conditions to Make Natural Gas Prices as Competitive as Possible

It is expected that new carriers will be attracted, making it possible to increase the supply: monetizing the national offshore natural resources through the UPGN or ensuring greater supply flexibility through the LNG terminals.

The premise is to ensure conditions to make the price of natural gas as competitive as possible, through diversification of suppliers (national and international market) and consumers (fertilizer, petrochemical, cement, ceramic, and glass industries).

In parallel to all this, an incentive is created for such carriers to charge a reduced transportation tariff for short distances, thus avoiding investments that deviate from the central transportation network at such a “sensitive” moment for the consolidation of infrastructure in the country.

TCD Aims to Mitigate the Risk of System Bypass

This way, the TCD aims to mitigate the risk of system bypass and promote the adhesion of new carriers that play an important role in the transition to a competitive market.

This tariff modality is aligned with the strategic guidelines of this sector, which are provided for in the legislation, especially in the Resolution of the National Energy Policy Council (CNPE) in 03/2022, as well as in the recent tariff practice of prioritizing the locational factor in tariff calculation that has been adopted by the ANP.

The Short Haul  is also adopted, or at least allowed, in the international regulatory experience of various reference jurisdictions such as England, Canada, the United States, and Argentina.

Incentive Will Facilitate the Monetization of the Expected National Production of the Sergipe Deep Waters (SEAP) Project by Petrobras.

Specifically, in Sergipe, this regulatory measure will contribute to the consolidation of the natural gas hub and the fertilizer center that will be of utmost importance for the state’s development.

The natural gas hub consists of the LNG terminal of the Sergipe Power Plants (CELSE), with a storage capacity of 170 thousand m³/day of LNG and regasification of up to 21 million m³/day.

Considering that the consumption of the Porto de Sergipe I thermoelectric plant, of 1,551MW, when dispatched, is around 7 million m³/day, it is clear the enormous availability for the supply of natural gas for other uses to be explored, which will depend on the emergence of a consumer market.

This incentive will also facilitate the monetization of the expected national production of the Sergipe Deep Waters (SEAP) Project by Petrobras.

Regarding the fertilizer center, there are projects such as potassium extraction by Vale in the Taquari-Vassoura complex and in the municipalities of Capela and Japaratuba, whose viability will depend on the supply of competitively priced gas, estimated to consume 760 thousand m³/day of natural gas in its initial phase.

In this scenario, the TCD will encourage new carriers receiving gas at the LNG terminal to transport the input through the central network instead of building dedicated short-distance pipelines, as the final destination would be nearby.

Otherwise, there is a risk of significant investments in infrastructure to meet specific interests, resulting in inefficiencies in pipeline investments.

It is essential that the TCD has a targeted application since a vast universe of beneficiaries could result in the rebound effect of excessive costs on other carriers and, consequently, consumers, increasing the gas price.

For this reason, the presented proposal is intended only for the transportation of natural gas injected into the network from a state and destined for consumption within that same state.

It is important to emphasize that the objective of this proposal is not to limit its application to the state of Sergipe, but to benefit all federative states that meet such circumstances.

Models of Natural Gas Transportation Tariff by Distance

Although the short haul has various forms of implementation, based on preliminary studies of foreign experiences on the topic, two possible models have been identified that would be in compliance with Brazilian law and aligned with the regulatory policy of market transition.

A first model is based on calculating the TCD on the construction and operation costs of a potential dedicated distribution pipeline that would compete with the transportation network.

A second option would be to develop a tariff that privileges the locational factor of transportation in such a way that the tariff component based on distance has a greater “weight” in the total tariff calculation, such as the Capacity Weighted Distance (CWD) methodology, adopted in Europe and in the public calls of Gasbol.

These Short Distance Tariff models are fully compliant with the Brazilian legal framework and aligned with the strategic guidelines for designing the new natural gas market established by the CNPE, not representing a violation of the prohibition against discriminatory treatment, which is one of the main pillars of the regulation of essential infrastructure sharing (i.e., essential facilities).

From a preliminary analysis of regulatory frameworks in reference foreign jurisdictions, which also adhere to principles regulating gas transportation, such as equity among agents and the prohibition of undue cross-subsidies, it is evident that tariff differentiation would not necessarily result in harm to other users.

In parallel, such measures mitigate significant risks for national gas transportation systems by attracting and solidifying investments in infrastructure and gas flows.

It is expected that such an initiative will foster an important debate with the ANP, which plays a central role in regulating and promoting the new gas market, in order to deepen concrete regulatory measures and incentives that accelerate the transition to a competitive natural gas market.

by – epbr