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Brazil Gas Trade Forecast
July 29, 2022 - Fitch Solutions Sector Intelligence
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
Brazil Gas Trade Forecast
- 29 Jul 2022
- Oil & Gas
Key View: Our weaker outlook for natural gas production will outweigh the effects of the downward revision for natural gas demand in 2022. Thus, we expect small growth in natural gas imports this year, dominated by LNG imports.
- We now expect Brazil to increase natural gas imports from 17.2bcm in 2021 to 27.1bcm in 2031.
- We have revised down 2022 forecast for natural gas production, amid delays in Route 3 pipeline and strong reinjections as well as natural gas demand forecast given wekaer demand from the power, industrial and commercial sectors. Thus, we now expect natural gas imports to Brazil to linger at 17.8bcm, marking a 3.4% y-o-y growth, down from 9.0% y-o-y growth last quarter. Growth in net exports growth will slow this year, from a record 41% y-o-y growth in 2021 on a back of strong demand form the power sector.
- LNG will become key in allowing Brazil to meet natural gas demand over our forecast period. We expect LNG imports to grow from 9.5bcm in 2021 to almost 18.0bcm in 2031 with additional upside potential due to spare LNG regasification capacity. LNG imports have surged over 2021, amid strong demand for natural gas from 3.1bcm in 2020 to 9.5bcm in 2021. Despite the record LNG inflows, Brazil used on average 30% of its total available regasification capacity.
- As of 2021, Brazil had three LNG facilities operated by Petrobras (Guanabara Bay/RJ, Todos os Santos Bay/Bahia, Pecém/CE) with a total of 47mcm/d of regasification capacity. Over 2020-2021, private consortia opened two additional FSRU facilities - Port of Acu (Prumo Logistica (46.9%), Siemens (33%), BP (20.1%)) and Porto de Sergipe/Barra dos Coqueiros (New Fortress Energy-NFE). In 2021, the Guanabara facility recorded the highest LNG imports of the average 14.55mcm/d (5.31bcm/y), after Petrobras expanded regasification capacity from 20mcm/d to 30mcm/d, followed by Bahia terminal with 7.97mcm/d (2.29bcm/y). Newly opened, private facilities imported an average of 2.99mcm/d (1.1bcm/y) in 2021.
- In our forecast, we include also three additional facilities - NFE's Gas Sul and Barcarena, initially expected to come online in Q222. However, they are most likely delayed given a limited update as of July 2022, and TRSP Terminal in São Paulo of Compass Gás e Energia scheduled for 2023. There are other LNG import facilities in the planning stage that constitute a substantial upside risk to our current LNG regasification capacity as well as LNG imports forecasts for Brazil.
- As the liberalisation of the natural gas market progresses, more companies have recently secured LNG or natural gas import permits. Over 2020, the energy ministry issued 24 new import permits. Among companies that plan to import natural gas to Brazil, there are Shell, which secured permission to import 36.5mcm/d of LNG and 14.0mcm/d from Bolivia; and Trafigura, which plans to import 10.0mcm/d from Bolivia.
- A New Gas Bill was approved by Brazilian congress in March 2021 and signed into law by President Jair Bolsanaro. The new law grants private companies permission to access natural gas infrastructure including import facilities such as LNG import terminal in Bahia. In our view, lifting of regulatory constraints will most likely attract more private companies to import natural gas to Brazil.
- We also recognise downside risks to LNG imports stemming from the potential increase in pipeline imports or domestic production. We note two groups of risks that could weaken LNG imports to Brazil. First, we note a potential increase in demand for pipeline imports. We have highlighted reduced flows of natural gas from Bolivia to Brazil amid expanding LNG imports over the recent years. However, third-party access to the cross-border pipeline (GASBOL) will most likely spur interest of private natural gas distributors to import pipeline gas from Bolivia eastern parts of Brazil, provided securing attractive supply contract terms. On that note, we also point at potential cross-border pipeline connection with Argentina, which has been discussed over the recent months. Should Argentina start supplying Brazil with natural gas, LNG imports will most likely weaken. However, the magnitude of the impact of a new pipeline connection on current natural gas supplies would depend on a number of factors, including the contractual price of Argentine pipeline gas. We did not include the new cross-border pipeline connection with Argentina in our 10-year natural gas imports forecast for Brazil, given very limited details of the potential project.
An increase in natural gas-fired electricity generation will support demand for natural gas as a source of power feedstock. With domestic gas output already below consumption levels, this increase will require continued imports. However, we believe production growth will fail to meet the growing needs of the domestic market, thereby weighing on Brazil's overall trade balance.
With the majority of the country's natural gas imports traditionally coming from Bolivia by pipeline, Brazil increased its supply of natural gas in recent years via LNG to confront both rising consumption levels and concerns over adverse weather conditions.
Brazil To Diversify Gas Supply
Brazil - Gas Net Exports (2020-2031)
Note: Negative implies imports; e/f = Fitch Solutions estimate/forecast. Source: ANP, Fitch Solutions
Brazil is building out its import infrastructure. Currently it has 26.4mtpa of regasification capacity in operation spread across five terminals, with plans for further expansion. More than 20 projects are reported to be in some stage of development, from initial feasibility studies to construction. Four of these are slated to begin operations over 2022-2023, including New Fortress Energy’s Gás Sul (0.1mtpa), Celba (0.1mtpa) and Suape (0.2mtpa) terminals and Compass Gás e Energia’s Cosan terminal (0.1mtpa).
Long-term LNG purchase agreements at the new facilities would be the first in Brazil's history as Petrobras has historically purchased LNG exclusively through the spot market. The 25-year commitment of the PPA encouraged GB to originally opt for this method due to the more costly nature of spot market purchases. As such, long-term purchasing agreements would support modest imports into Brazil's LNG market through 2029.
Although the legacy terminals face underutilisation, in our view, the progress on natural gas market liberalisation, in the framework of which Petrobras is expected to allow for third-party access in LNG terminal, should spur interest in LNG markets from private distributors, raising the utilisation rate.
In an effort to increase competition in the market, outgoing president Michel Temer signed a decree in December 2018 to regulate third-party access to existing natural gas pipelines and regasification terminals. The process will be managed by the ANP which will set fees and establish the rules for accessing the infrastructure. In July 2019, current president Jair Bolsonaro established a inter-ministerial committee to oversee the market liberalisation processes. The government hopes this will encourage other state-controlled distributors to sign new supply contracts that traditionally have come via Petrobras.
Additional supplies from deepwater plays serviced through the Route 2 pipeline inaugurated in February 2016 will not be enough to service domestic demands. Although we expect production growth will outpace consumption, a deficit of midstream connectivity and the re-injection of offshore supplies will undercut the availability of domestic supplies. This will maintain Brazil's trade deficit through the end of the decade as new gas-powered generation facilities demand increasing amounts of feedstock.
We caution that the Route 3 pipeline is likely to experience delays owing to its planned point of delivery, the Comperj refinery. The 165,000b/d facility is one of several downstream facilities being re-evaluated in the wake of the Petrobras scandal due to its inflated project costs and alleged involvement in the scandal. Given the refinery's continued suspension, we have yet to include either project in our current forecast for downstream capacity growth. Such delays could threaten the development of the third deepwater natural gas pipeline and supports our view for continued import demand through the remainder of the decade. We now expect Route 3 to become partially operational in mid-2022 and fully operational in 2024.
Brazil - Planned LNG Import Projects
|Project Name ||Capacity (mcm/d) ||Initial Study Phase ||Licensing Phase |
|Rio Grande ||14 ||x || |
|Sao Jose do Norte ||- ||x || |
|Tramandai ||- ||x || |
|Imbituba ||- ||x || |
|Terminal Gas Sul ||15 || ||x |
|Terminal COPEL ||14 ||x || |
|Peruibe ||20 ||x || |
|Terminal COSAN ||14 || ||x |
|TEPOR ||- || ||x |
|Porto Norte Fluminense ||- || ||x |
|Porto Central (Presidente Kennedy) ||20 || ||x |
|IMETAME Logistico Porto || || ||x |
|Terminal Petrobras ||14 ||x || |
|Terminal de Suape ||14 ||x || |
|Terminal Maranhao - UTE GERAMAR III ||- || ||x |
|Terminal Maranhao - UTE Sao Marcos ||21 ||x || |
|Terminal CELBA ||15 || ||x |
|TUP Hidrvias do Brasil ||- || ||x |
|Terminal Guajara ||- || ||x |
|Terminal Itacoatiara ||- || ||x |
|Terminal Amazonica Energy ||- ||x || |
|Note: As of August 2019. Source: EPE |
Gas Net Exports (Brazil 2020-2025)
|Indicator ||2020e ||2021e ||2022f ||2023f ||2024f ||2025f |
|Dry natural gas net exports, bcm ||-12.2 ||-17.2 ||-17.8 ||-19.4 ||-20.3 ||-21.0 |
|Dry natural gas net exports, % y-o-y ||15.8 ||40.8 ||3.4 ||9.3 ||4.4 ||3.6 |
|Dry natural gas net exports, USDbn ||-2.5 ||-6.0 ||-6.5 ||-7.2 ||-7.8 ||-8.4 |
|Pipeline gas net exports, bcm ||-9.1 ||-7.7 ||-8.0 ||-7.4 ||-7.5 ||-7.8 |
|Pipeline gas net exports, % y-o-y ||21.8 ||-16.1 ||4.3 ||-7.4 ||0.6 ||4.4 |
|Pipeline gas net exports, % of total ||75.0 ||44.7 ||45.1 ||38.2 ||36.8 ||37.1 |
|LNG net exports, bcm ||-3.1 ||-9.5 ||-9.8 ||-12.0 ||-12.8 ||-13.2 |
|LNG net exports, % y-o-y ||1.0 ||211.5 ||2.6 ||23.1 ||6.7 ||3.1 |
|LNG net exports, % of total gas exports ||25.0 ||55.3 ||54.9 ||61.8 ||63.2 ||62.9 |
|e/f = Fitch Solutions estimate/forecast. Source: ANP, Fitch Solutions |
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