Lack of Santa Catarina gas transport a concern

A lack of natural gas infrastructure in Santa Catarina, Brazil, is hindering competition and forcing industrial consumers to seek other energy sources.

Industries in the state suffer from a lack of gas supply, said Otmar Müller, president of the energy chamber at the Santa Catarina industry association FIESC and industry entrepreneur for the ceramics sector. Gas consumption could increase by 30pc immediately if transportation was available, but instead this share of energy is being partially met by higher-polluting sources such as coal, he said.

Santa Catarina is supplied by the TBG pipeline, which brings gas from southeastern states and also moves Bolivian gas into the state. But its capacity is fully subscribed currently, leaving consumers unable to procure gas in the bilateral contract market and having to resort to the local distribution company, under regulated tariffs.

The local industry is eager to pursue a migration away from the regulated market and the local distribution company, into the bilateral market, as appointed by a pool made by FIESC with its associates.

Gas trading companies and gas producers are offering gas supply in the new open market but have raised concerns about a lack of regulation and clear rules for gas trading. There are also concerns about transportation bottlenecks, which could be solved partially by regulations over such measures as capacity release from Petrobras. Gas distribution is defined by state law in Brazil, but following the approval of the new federal gas law in April 2021 states must update their local laws and regulation.

Despite the difficulties, Müller points out that some players are investing in Brazil and developing new markets. One example is the New Fortress Energy LNG terminal in Santa Catarina, expected to start operation by April, that will take compressed gas processed onshore via truck directly to the distribution grid, skirting pipeline transportation.

"This LNG will save the industrial consumers, and it comes at a competitive price in comparison to Petrobras' supply," Müller said. But he noted that using trucks is not the ideal option for the market and more transportation capacity must be built.

The current permit contract for local gas distribution companies, signed more than 10 years ago, is also a point of concern for industrial consumers, he said. Several of these permits offered by state governments have questionable benefits, such as imposing a fixed remuneration for the distributors as a percentage of all costs - even for gas, maintenance and operational costs. Müller said the ideal moment to discuss updating those contracts would be now, prior to Petrobras' selling its share in distribution company Gaspetro.

By Flávia Pierry