BRAZILIAN NATURAL GAS INDUSTRY:

CHALLENGES AND PROSPECTS

Prof. Marcelo ColomerEnergy Economics Group

Institute of Economics

Federal University of Rio de Janeiro

Roundtable hosted by

Center on Global Energy Policy

Columbia University

New York, May 18, 2015

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mcm

/d

Natural Gas Production

Source: ANP.

Natural Gas Production in Brazil

increase 150% between 2000

and 2014,…

…specially on offshore basins,

what explain the high cost to

bring it to the market;

Natural Gas Domestic Production in Brazil Increase

Constantly in last 50th years

Oil price

shocks

Oil Industry

liberalization

Natural Gas Production

However, that Increase Depends from Oil

Exploration

Source: ANP.

• The natural gas production

increase due mainly to

Petrobras exploration efforts of

oil;…

• … it explain why the natural

gas production is mostly

associated with oil production.

93%

5%2%

Petrobras Parnaíba Gás Others

Natural Gas Production

Natural Gas Production

Natural gas exploration business

in Brazil is still in its infancy!!!

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mcm

/d

Associated Non-associated

Petrobras Control the Natural Gas Industry

• Most of natural gas gathering

pipelines are owned by Petrobras…

• …so, Petrobras is the only natural

gas supplier to the market. Other

producers sells their production to

Petrobras.

• The company is also present in all

natural gas chain, as the owner and

operator of the pipelines and as

partner of almost all LDCs in Brazil;

• All imports of natural gas is done by

Petrobras

Source: ANP.

55%

42%

3%

Trasnpetro

Gasbol

Lateral Cuiaba

Natural Gas Transport Pipeline Ownership

• 75% of Brazilian production is offshore

and associated with oil,

• Furthermore, the weak regulation related

to gathering pipelines reduces the

interest of independent companies in gas

market;

• Most of the gross production does not

reach the market;

• In 2014, only 55% of the Brazilian gross

production were available to the market;

• The consumption in E&P facilities and

reinjection were responsible for 35% of

gross production utilization;

Despite the increase in Brazilian production, the

domestic supply continue insufficient

18%

5%

13%

5%

4%

55%

Reinjection Flaring

E&P consumption Consumption in transport and storage

Consumption in treatment plants Domestic Supply

Gross Production Destination

Source: ANP.

• In 2013, the production of pre-salt

accounted for 13% of total production in

Brazil;

• According to the Brazilian government,

the production of pre-salt will account

for 57% of gross production of natural

gas in 2023;

• However, uncertainties about CO2

contamination in the pre-salt reservoirs

and the long distance from the coast is

a barrier to the monetization of pre-salt

natural gas;

• MME expect that only 65% of gross

production will reach the market in

2023;

New perspectives for Natural Gas Industry in

Brazil: Presalt

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5

10

15

2008 2009 2010 2011 2012 2013

%

Source: AN e MME.

Pre-salt Share in Natural Gas Production

Natural Gas Production Forecast

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50

100

150

200

250

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Mcm

/d

Pos Salt Pre Salt Total

• Another uncertainty factor is the

repeated delays in the

construction of gathering

infrastructure;

• By 2015, only the Route 1 was

operating;

• it is expected that Route 2 begin

operations in 2016 and Route 3

in 2017;

• The construction of the three

routes will increase the transfer

capacity of 40Mcm/d. This

growth, however, is not sufficient

to drain the presalt production;

New perspectives for Natural Gas Industry in

Brazil: Presalt

Pre-salt Share Transfer Infrastructure

Source: Petrobras

• The Brazil has 116 bcm of natural gas

reserves on land. This is 13% of the total

reserves of the country;

• According to the MME, onshore production

will reach 56MMcm/d in 2023. Of these,

14MMcm/d will be Nonconventional and 41

conventional resources;

• In June 2013, the EIA analyzed the

potential of shale gas in only 3 basins in

Brazil:

Parana Basin: 81 TCF;

Solimões Basin: 65 TCF;

Amazonas Basin: 100 TCF

New perspectives for Natural Gas Industry in Brazil:

Onshore

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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Mcm

/d

Offshore Onshore Conventional Onshore Non-Conventional

Natural Gas Production Forecast

Total of 246

TCF ou

6,96 TCM

• Even with this limitation, Brazil’s

technically recoverable shale gas

resources ranked 10th in the world;

• The ANP (Brazil’s National Agency of

Petroleum, Natural Gas and Biofuels)

made an estimation of shale reserves

in situ in 3 other basins not analyzed

by EIA, using Barnett Shale as

Analog:

Parnaíba–64 TCF

Parecis–124 TCF

Recôncavo–20 TCF

Source: EIA, Technically Recoverable Shale Oil and Shale Gas Resources: An

Assessment of 137 Shale Formations in 41 Countries Outside the United

States, June 2013

New perspectives for Natural Gas Industry in Brazil:

Onshore

Total of 208

TCF ou 5,8

TCM

208 + 246 =

454

Barriers to the development of unconventional gas in

Brazil

• Bidding rounds have been irregular and unpredictable;

• There is no predictability about which areas will be subject to bidding;

• Third party provocation mechanism to indicate areas to be auctioned is not

effective;

• There are many areas of low level of geological knowledge and the ANP have

scarce resources to investments in geological survey data;

• Technical and environmental regulations too complex and bureaucratic: High

regulatory cost:

Demand is increasing faster than production

Source: Abegás.

• The natural gas consumption in

Brazil, goes from 27 to 100

MMcm per day between 2000

and 2014;

• Industrial sector used to be the

mainly consumption sector.

Although,…

• …recently changes in power

sector, increased demand from

natural gas power thermal

plants;

Natural Gas Consumption

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Mcm

/d

Other Comercial Residential Co-generation Transport Industry Power Generation

Brazil Natural Gas Imports

Source: MME

• Natural gas imports in Brazil

increase from 6 to 51

MMcm/d between 2000 and

2014;

• Until 2010, natural gas

importation came mainly

from Bolivia;

• However, since 2010, LNG

imports has increase fast

due to thermal demand of

natural gas;

• The absence of storage

facilities and the

characteristics of thermal

demand explain why Brazil

buy LNG on spot market;

Natural Gas Imports

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20U

SD

/MM

Btu

• LNG imports are mainly used to

supply peaks from thermal

power plants demand, as a

backup for the hydropower

system;

• It explain the high prices of LNG

cargos to Brazil. In 2014, the

average price of LNG imported

in Brazil was USD 14,8 per

MMbtu;

• Although Brazilian participation

in LNG market is small, he

pushes the marginal spot price

up.

Imports x Power Generation

Source: MME

Brazil: LNG Imports

Brazil: LNG Price

LNG Regasification Plants

• Brazil has 3 regasification plants with

a total capacity of 41 Mcm/d:

LocationRegas Capacity

(Mcmd)

Rio de Janeiro 20

Ceará 7

Bahia 14

LocationNew Regas Capacity

(Mcmd)

Suape 14

Rio Grande do

Sul

14

THANK YOU

marcelo.colomer@ie.ufrj.br