Brazil: The New Gas Law

In 2021 the New Gas Law (Law 14,134/21) was enacted to set the new landmark for the gas transportation activities in Brazil.

The New Gas Law’s major changes include:

• The authorisation regime for the construction and operation of gas transportation pipelines;
• The storage in geological formations;
• Third-party access to the LNG outflow, pro­cessing, and terminal facilities; and
• The gas market unbundling.

Authorisation regime

During the validity of the prior gas law, gas pipeline construction and operation were sub­ject to the concession regime through a bidding procedure, which proved to be impractical and bureaucratic and did not encourage expanding the network. The authorisation regime for gas transportation activities brought by the new law aims at being straightforward, and foresees some steps to be taken for its final granting:

• Open season to estimate gas demand to the new facility;
• Public hearing for the maximum revenue per­mitted to the pipeline company and transpor­tation tariffs;
• Term of expression of interest by other ship­pers; and
• In case there is more than one interested shipper, a selective process to choose the most beneficial project based on technical and economic aspects.

Storage in geological formations

The New Gas Law also establishes that the authorisation regime should be applied to gas storage in geological formations. The goal is to foster investments in the storage activities, ensuring natural gas supply to the market.

Third-party access

Another improvement arising from the New Gas Law is the third-party access to production out­flow pipelines, processing units, and LNG termi­nals through direct negotiation with their owners, based on general access practices and codes of conduct previously established. The ANP must regulate the preference of the owner of the facili­ties.

Unbundling

The New Gas Law imposes barriers to the gas market verticalisation, prohibiting direct or indi­rect corporate relationships, control, or coali­tion between pipeline companies and entities engaged in the exploration, development, pro­duction, importation, loading, and marketing of natural gas.

According to the law, professionals in charge of selecting the members of the board of direc­tors, executive officers, or legal representatives of entities operating in the exploration, develop­ment, production, importation, loading, and mar­keting of natural gas must not have access to the pipeline company commercial sensitive informa­tion, as well as elect members of its board of directors and executive committee.

The ANP will monitor the natural gas market, adopting mechanisms to stimulate efficiency and competitiveness and reduce natural gas offer concentration, including:

• The decentralisation of supply and compul­sory capacity release, production flow, and processing capacity;
• A natural gas sales programme whereby traders with a significant market share are required to sell, through auctions, part of the volumes held by them with a minimum initial price, quantity, and duration to be defined by the anp; and
• Restrictions on the sale of natural gas between producers in production areas, except in the case of technical or operational situations that may compromise oil production. To apply such measures, the anp must previously consult with the brazilian antitrust defense system (sbdc).

Regulation by the ANP

Since the enactment of the New Gas Law, the ANP has handed down two important Resolu­tions.

• Resolution ANP No 850/2021 regulates the activities of natural gas production, storage, commercialisation, and the provision of gas processing services (promotes the simplifica­tion of the gas processing activity).
• Resolution ANP No 881/2022 regulates the access to waterway terminals for the flow of oil, oil by-products, and natural gas. The access to LNG terminals is not subject to this Resolution.

Even with all the improvements brought forth by the New Gas Law, there are still relevant topics which need to be regulated by the ANP, such as:

• The negotiated and non-discriminatory third-party access to production pipelines, natural gas treatment or processing facilities, and LNG terminals;
• The definition of technical criteria for transpor­tation gas pipelines;
• Gas pipeline classification;
• Storage activities and logistic operations for the movement of bulk LNG by alternative modes other than pipeline; and
• Storage activities and logistic operations for the movement of compressed natural gas.

Finally, it is worth mentioning LNG opportunities. In accordance with the ANP’s 2023 Statistical Yearbook, the size of the gas market in 2022 continued to grow, showing an increase of 3.1% when compared to 2021, totalling approximately 50.3 billion m³. Natural gas imports amounted to nearly nine billion m³, a decrease of 47.1% in comparison to 2021, of which 2.6 billion m³ corresponded to LNG imports.

Closing remarks

Based on the foregoing, we expect opportuni­ties for new investments in 2023 and 2024 in oil and gas and renewables in the Brazilian market.

Paulo Valois, OneLegal Partner

Originally published in Chambers and Partners

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