The Brazilian legislature has approved a new Gas Law, which will liberalise the functioning of the gas markets in the country and is expected to present opportunities associated with market growth and infrastructure development in the sector.
What HappenedFor decades, the Brazilian gas market has been plagued by insufficient midstream infrastructure, lack of competition, bureaucratic regulatory processes, and high end-user prices, which have constrained the penetration of natural gas usage in the country. After much debate and even a failed attempt in December last year, the legislature has finally approved the new Gas Law and sent it for sanction by the President. Several amendments proposed by the Senate, which could have blunted the scope of the law, were rejected by the Chamber of Deputies. The expectation is that the law will promote greater accessibility and choice for consumers and enable free-market price discovery.
Key DetailsFollowing are some of the major highlights of the Gas Law, along with their potential implications:
- All the gas midstream infrastructure in Brazil have so far been operated on a proprietary basis, with no obligations for third-party access. This law facilitates third-party access to gas pipelines, processing facilities and LNG regasification terminals;
- An entry-exit tariff model will be established for the transportation networks, and the regulator will determine the maximum pipeline tariffs that will be applicable on each of them;
- A major issue restricting interstate gas flows has been the multiple layers of taxes that become applicable. This has inflated end-user prices quite significantly, making natural gas uncompetitive. The Gas Law will introduce a tax equalization policy, whereby there will only be a single, uniform tax applicable on the sale of natural gas;
- With an intent to unbundle the sector and further reduce the monopoly of Petrobras, gas producers and resellers will not be allowed to own gas transport infrastructure and vice versa;
- Developers looking to construct new pipelines will no longer be required to go through the concession model, which is an arduous bureaucratic process, and will be allowed to use a much simpler authorization model, which is expected to significantly reduce uncertainty and lead times..