Discussion panel composed of a consultant from the natural gas sector and an attorney from the regulatory agency of the energy area emphasize consensus and dissent in the discussions held by the eight subcommittees of Natural Gas for Growth

Organized for last June 7 by the FAPESP-Shell Research Centre for Gas Innovation (RCGI) and by the Energy and Environment Institute (IEE), the panel discussion “Regulatory Updates of the Natural Gas Market: Natural Gas for Growth Workshop” brought together researchers, professors, public administrators, business people, legal consultants, and players that are active in the natural gas sector for an entire day, to discuss aspects of the Natural Gas for Growth initiative launched in 2016 by the Federal Government. The event was coordinated by Professor Hirdan Katarina de Medeiros Costa and Professor Edmilson Moutinho dos Santos (both from the IEE).

The discussion panel members, Zevi Kann, a consultant who once worked for the São Paulo Electric Company (CESP) and the Paulista Electricity Transmission Company (CTEEP), and Carina Couto, from the Sanitation and Energy Regulatory Agency of the State of São Paulo (ARSESP), focused their presentations on the work of the eight subcommittee discussion groups established by the Natural Gas for Growth initiative. Kann also spoke about establishing the work group that deals with the end supplier. The consultant took part directly in two subcommittees: Distribution and one dealing with “Federal natural gas”. He also was on the General Committee.

According to him, the first subcommittee deals with the Flow, Processing, and Regasification of natural gas. At that point, they discussed the promotion of non-discriminatory access by third parties and increasing transparency regarding pricing and characteristics, capacities and the use of infrastructures. “This is a very relevant subject and could change the offer of natural gas by producers that, today, have only the possibility of selling to Petrobras,” he said.

The engineer remembers that in 1999, when the regulatory framework for São Paulo was established, the prognosis for establishing a free market for natural gas was 12 years. “That seemed to be a long way off and absurd. But the fact is that there was no market. Production, flow, transport, and infrastructure were serious problems. In 2011, with the market already fully regulated, with the sellers disciplined, accredited, and authorized, not a single open consumer contract had yet been signed. That blockage came from about, from production. And it continues, today. So far, Natural Gas for Growth has not resolved these issues.”

He says that the calendar of the natural gas area is very long and very slow. “Eighteen years have gone by since 1999. And, we still do not have open access that functions adequately.”

Subcommittee number two deals with transportation and storage. A new transportation model for natural gas is being discussed, as well as improvements in planning for the expansion of the transportation network, changes in the model for granting transportation and storage rights, and incentives for storage and its integration with the transportation model. “With the current system, set forth in the Natural Gas Law, which dates from 2009, not a single meter of gas pipe line granted has been established since the Law went into effect. It is a long process: it needs the approval of countless institutions, then it must choose the concessionaires, and choose the carriers, rescale the gas pipeline according to the carrier offers, in order to finally take it all to an auction, so that the carriers can bid for the lowest price. This is an absolutely impractical process.”

The third subcommittee deals with distribution. “The main agenda here is to harmonize Federal and State regulations, which is an absolutely necessary subject to be resolved. There are also disparities between the State regulations: deadlines and quantities. However, that committee has not been productive, because there was a bit of radicalization. A consensus was not pursued, so no agreement was reached. In the end, a Abegás (Brazilian Association of Distributors of Piped Natural Gas) dropped out of the discussions.”

Carina Couto, Superintendent of Regulating Pipe Line Natural Gas for ARSESP, feels that although Natural Gas for Growth reflects the efforts of agents to contribute to necessary improvements to the Natural Gas Law, there is still much dissent in various groups, especially in the discussions regarding distribution.

“The definition of “open, or free, user” is one of them. In the subcommittee that discusses distribution, there was a consensus that the criteria for qualifying open, or free, users should be established by the States or the Federal Government, but reasonably, so as to allow the migration of users from the industrial segment in the captive market to the open, or free, market. We have a registry of more than 230 potential free users. But no contract has been signed, yet, due to the lack of bidders.” Carina explains that, from ARSESP’s viewpoint, an open, or free, user is one who consumes more than 10,000 m³/day.”

Payment of the Distribution System User’s Fee (TUSD) is another polemical issue in this subcommittee. “There are questions regarding the obligation, or not, of the producer, of the importer, and of the open, or free, user who use the dedicated network (a network for exclusive and specific use) to pay the TUSD. There are groups who believe that they should. Others think not,” Carina explains.

She states, however, that important consensus’ were also reached in the distribution subcommittee, especially regarding the guidelines for the States. “it was the consensus of the subcommittee that there are measures that can be implemented to ensure the fulfillment of some basic principles of the regulations, such as the strengthening and institution of independent regulatory agencies (in the case of States that still do not have them); the need to announce information (transparency); the participation of agents in consultations and public hearings; and the purchase of natural gas for the captive market, through auctions.”

The subject of subcommittee four is commercialization. It deals with defining the national natural gas market, the implementation of accounting and liquidating differences, the short-term market (MCP), and competitiveness. “The horizon, here, is ten down the line. We are discussing the creation of a natural gas market without even meeting the minimum conditions, yet, for other agents to offer natural gas. We are also talking about the need for natural on the part of the distributors, that have had their volumes reduced. There already are regulations implemented regarding commercialization in several States, in models other than what is set forth by Federal involvement,” Kann explains.

The consultant states that subcommittee five, which deals with improving the tax structure for the natural gas sector, has worked very well. “Of the twenty tax problems in existence, the group was able to present solutions for four, through bills to be passed by legislatures and modifications in the infra-legal situation.”

The subject “natural gas as a raw material”, which is the focus of subcommittee six, is subject of limited interest. “The group is basically represented by ABIQUIM (Brazilian Chemical Industry Association). But most of the other agents were against the proposals presented by the Association, including even other large consumers, like ABRACE (Brazilian Association of Large Industrial Consumers of Energy and of Free Consumers). This is because the chemical industry wants cheaper natural gas, which is its only way of surviving. Its representatives have proposals, but they are hard to implement.”

Subcommittee seven deals with the Federal Government’s use of natural gas. It is discussing the implementation of a commercialization policy, both transitory and long-term. “The hardest part, here, is to calculate the quantities of natural gas for the Federal Government to offer in the short term. Everyone would want natural gas for the day after tomorrow, and very cheap. But that gas comes from Libra or other fields, and it is certain that the costs will not be very low. Furthermore, there are enormous technological difficulties to be taken into consideration.”

Finally, group eight deals with integrating the natural gas and electricity sectors. Some of the subjects worked with in this subcommittee are the balanced allocation of risk between the electrical and the natural gas sectors, the model for supplying natural gas that best meets the needs of both sectors, and integrated gas-electricity planning.

“This subject is absolutely relevant for the sector. The discussion group made a list of 30 to 40 subjects to be resolved and in the final meeting proposals were presented for only four of these subjects.” According to Kann, the natural gas sector might, or might not, have another way to go, depending on the solutions of the electrical sector, especially with regard to the issue of basic thermoelectric plants.

“If this type of contract existed, it would be allowed, in gas-electricity type planning, to take natural gas pipelines to regions of the country that do not have this structure today. And will continue not having it for a long time. In brief: where there is a transporting pipe line, there will be a thermoelectric plant. The scenario points to thermoelectric plants all along the transporting pipe lines, and no other natural gas pipe line is feasible, if there are no anchor consumers, like the thermoelectric plants. This problem will persist. Either integrated natural gas-electricity planning is done, think together the gas pipe lines versus the transmission lines, that is, integrating the system, or we will remain with a very poor model, in terms of gas pipe line.”

The subject of End Supplier (SUI), according to Kann, is very new. The SUI is involved with serving consumers that are vulnerable or protected, in the case of an interruption of the supply by the original supplier, of the de lapse or revoking of the license of the original supplier; in cases where the client does not have an established natural gas supplier and/or in the case of the expiration of the contract for supplying natural gas. “The group began discussing what the SUI ‘would not be’ and which attributes it would not have. They ended up listing a role of activities that are not up to the group. In the end, the conclusion of the group was that possibly, in the short term, we will no longer need the SUI. That was totally unexpected.”

According to Professor Hirdan Katarina de Medeiros Costa, an RCGI researcher and one of the organizers of the event, the Natural Gas for Growth initiative enjoyed a very successful first phase and, now, is on hold. “The first rounds of the nine subcommittees has ended and the reports of each one have been delivered to the Ministry of Mining and Energy (MME), which will analyze them and forward them to the next appropriate levels. But all of Brazil is on hold, due to the lack of political definitions. Despite that, we have good prospects, because the discussions of the subcommittees were fruitful.”