Brazilian House of Representatives Approves Bill of Law Aiming to Increase Competitiveness in the Country's Natural Gas Sector

Brazil's New Gas Bill is seen as one of the paths for the country's economic recovery in the wake of the COVID-19 pandemic.

On September 1, 2020, the Brazilian House of Representatives approved Bill of Law n. 6407/2013 ("New Gas Bill"), which changes the regulatory framework of the natural gas sector in Brazil. The New Gas Bill is seen as a priority by the Brazilian Federal Government and one of the paths for the country's economic recovery in the wake of the COVID-19 pandemic by promoting modernization, competitiveness, and an investment-friendly environment to provide energy at a lower cost.

Among others, the New Gas Bill provides for the following changes:

  • Authorizations: Construction, expansion, operation, and maintenance of pipelines will require authorizations from regulator (Agência Nacional de―"ANP") rather than the currently required concessions which are granted with respect to projects defined by ANP and subject to public bidding processes. The authorization process is simpler—an interested party submits their own proposal for construction or expansion of a pipeline to ANP for approval—and should facilitate the entry of new players into the natural gas market. If multiple parties are interested in the construction of a given pipeline, ANP will promote a public and competitive selection process.
  • De-verticalization: The New Gas Bill does not allow players to act in multiple stages of the production of natural gas. That is, transporters of natural gas cannot be directly or indirectly controlled by, or affiliates of, any companies acting in the exploration, developments, production, importation, or commercialization of natural gas. This provision essentially breaks the monopoly state-owned Petrobras has over the natural gas market in Brazil.
  • Access to Existing Infrastructure: While owners of the pipelines will still have preference to use the infrastructure, the New Gas Bill provides that all companies must make available access to pipelines and processing stations to any interested third parties upon compensation. With that, all of the infrastructure currently existing in Brazil will be available to any party interested in using it, provided there is idle capacity.
  • Entry-Exit Tariffs: Under the New Gas Bill, sellers can contract for injection capacity, and buyers can contract for removal of the natural gas, freely and with any counterparty, regardless of the origin, destination, or path of the pipeline. Currently, tariffs for the entire trajectory must be contracted for, from origin to final destination of the natural gas. ANP will no longer be required to hold public calls for capacity, and tariffs will be determined by transporters in accordance with ANP regulations. This change would contribute significantly to the de-bureaucratization of the process, making the purchase and sale of natural gas significantly simpler.
  • Underground Storage: The New Gas Bill also provides that the underground storage of natural gas will be subject to authorizations, instead of the currently required public procurement processes and concessions. Underground storage brings potential benefits to the market, as it provides supply security, reduces price volatility and risks, and creates more flexible offer.

In order to be enacted into law, the New Gas Bill must still be approved by the Senate and sanctioned by the President. The changes set forth in the New Gas Bill are expected to reduce the price of natural gas up to 40% and to attract tens of billions of U.S. dollars of investments into the country.

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