Bolsonaro sanctions law pledging to open the gas market and make energy cheaper

RIO DE JANEIRO, BRAZIL – President Jair Bolsonaro on Thursday, April 8th, sanctioned the New Gas Law, which ends the Petrobras monopoly and modifies the legal and regulatory framework to promote competition in the country and attract investments of around R$60 billion to triple natural gas production in ten years to integrate it into national power generation.

The new law comes into effect almost two years after the launch of the program pledging a “cheap energy shock” with the end of Petrobras’ monopoly over natural gas – a project championed by Ministers Bento Albuquerque (Mines and Energy) and Paulo Guedes (Economy).

Read: Brazil passes natural gas law to attract investors, cut red tape

The new law integrates the gas chain into the electric system. Under the new rules, industrial consumers will be able to buy directly from suppliers. Before, they had to be held hostage by local distributors that bought the fuel basically from Petrobras. This will help, above all, the cellulose, ceramics, fertilizer, petrochemical, and steelmaking industries.

With the new framework, thermoelectric plants, which today are responsible for adding energy to the system when there is little rain, and the plants do not produce enough, will be able to convert to natural gas (in the same way as automobiles). Today they run on diesel, which raises the price of the average MWh of energy to R$1,200, increasing the consumers’ tariffs.

The new legal framework was sanctioned by Bolsonaro without vetoes and affects all links in the gas chain: production, pipeline transportation, treatment, processing, underground storage, liquefaction, regasification, and commercialization.

Projections by the Energy Research Company (EPE) indicate that, with the modernization of the sector due to the new rules, the sector could generate four million jobs in five years and add 0.5% growth to the GDP by 2030.

According to the Undersecretariat of Legal Affairs of the Presidency of the Republic, the New Gas Market represents “the culmination of a sequence of actions of the Federal Government that gained steam in July 2019.” The model was developed based on experiences in the United Kingdom and European Union countries.

To ensure regulatory balance in the country, the law harmonizes the states’ regulatory rules with the new framework and promotes the removal of tax barriers.

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Among the main innovations is the substitution of the concession regime for the authorization to explore natural gas transportation services and underground storage, which will reduce the bureaucracy for expanding the transportation network.

The law imposes taxonomic treatment to all companies that need access to transportation pipelines to pass gas to their distribution infrastructures, such as production pipelines, natural gas treatment or processing facilities, and liquefied natural gas (LNG) terminals.

Read: Why is Brazil´s gas consumption half that of Argentina, despite much larger economy?

The expectation of specialists, however, is that effects on prices will still take time to occur. Virtually the only supplier in the country, Petrobras announced on Monday, April 8th, a 39% increase in fuel prices, passing on oil and dollar increases in the first quarter.

The advance of private companies in the sector is due both to domestic production and import initiatives and studies to expand the gas pipeline network to allow new sellers to deliver the product to their customers.

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