Two years after the liberalization of the Brazilian gas market, industrial consumers are still struggling to access the free market, leaving prospects for LNG demand still largely a function of power generation needs. After heavy rains throughout 2022 and early 2023, only minimal thermal generation may be needed to plug the supply gap in the power sector.
Brazil’s hydropower reservoirs are expected to reach more than 80pc of their collective maximum capacity in May, according to grid operator ONS. The power spot price for clearing (PLD) is expected to be kept at its R69/MWh regulatory bottom until the end of the year, according to Brazil’s chamber of electric energy commercialization (CCEE), limiting the changes for thermal generation on merit order, when thermal power generation is priced below other sources.
Strong hydroelectric, wind and solar power generation is set to curb Brazil’s thermal power demand this year. Hydropower generation met 76pc of the country’s power load in January, while wind turbines met another 12pc, solar 2.7pc and thermal — including gas, coal, nuclear and others — at 9.1pc.
Many large industrial consumers would be keen to begin importing LNG to improve supply in a market that remains tight, but regulation and a lack of infrastructure are still hampering the development of Brazil’s downstream market.
Market participants have flagged the high level of penalties they would have to pay for processing capacity services if they opted to import LNG directly or buy gas directly from producers, rather than purchase volumes from local distributors, and have called for the regulations to be amended. Access rules for essential facilities such as regasification terminals are also still unclear, with no transparency to tariffs and costs.
Limited pipeline connections between existing LNG terminals and the distribution grid are also hampering market development. Pipeline operator TAG has agreed to build a 14mn m³/d pipeline linking the gas network to the Porto de Sergipe terminal, but that is not expected to start operating before April 2024. A deal to build a pipeline connecting the GNA terminal and the distribution network in Rio de Janeiro state is still being negotiated.
Source : Argus Media