Implementing Gas Market Reforms in Brazil

On 8 April 2021, Brazil’s President Jair Bolsonaro sanctioned the New Gas Law (Law nº 14.134/ 2021), setting the basis for a profound reform of the Brazilian Gas Market. Natural gas market reforms can bring substantial benefits to economies and support their recoveries from the current global crisis. The establishment of liquid wholesale gas markets fosters competition among suppliers, supports efficient resource allocation, and ensures transparent price discovery.

Besides fostering competition and improving efficiencies, gas market reforms can support clean energy transitions. An open and transparent access to the gas network improves the physical flexibility and short-term deliverability of gas systems and as such can facilitate the integration of a higher share of variable renewables into the broader energy system. In addition, the open, non‑discriminatory grid access rules, enhanced operational transparency, flexible congestion management mechanisms and improved network interoperability made possible by these reforms will support the introduction of decentralised, small-scale and variable production of low-carbon gases (such as biomethane, hydrogen, synthetic methane) into the gas system as well as enabling their cost‑and time-efficient trading. The effective deployment of low-carbon gases would further require the introduction of supporting schemes and the development of market rules related to the non-discriminatory application of blending limits, interoperability, enhanced data exchange and quality-neutral gas trading. This longer-term prospect should be further taken into consideration as the current regulatory framework is developed.

Gas market reforms are usually complex and lengthy, with both the European and North American experiences showing that it takes at least a decade to establish well-functioning, competitive wholesale gas markets. Strong political commitment, clear regulation and international experience-sharing can help fast-track gas market reforms.

The relationship between Brazil and the International Energy Agency (IEA) has grown considerably since the country joined the IEA as an association country in October 2017. Since then, collaboration and joint work has expanded to new topics, including energy innovation, system integration of renewables, as well as power and natural gas markets reforms.

Starting in 2018, and thanks to the support of the government of the United Kingdom, the IEA has led the IEA-Brazil natural gas market reform dialogue and peer review process. This collaboration aims at facilitating access to European experiences on gas market reform, providing technical support for the Brazilian government to develop policies and regulations that take stock of international best practices, but are adapted to the particularities of the Brazilian context.

Under this dialogue and peer review process, and in close collaboration with the Brazilian Ministry of Mines and Energy (MME) and other stakeholders, the IEA has organised a number of key activities in Brazil and Europe (as well as remotely), including international workshops, fact-finding missions, technical visits and dissemination activities. In October 2018, this led to the publication of the IEA report “Towards a competitive natural gas market in Brazil: A review of the opening of the natural gas transmission system in Brazil” (IEA, 2018), which was translated to Brazilian Portuguese in 2019.

The white paper reflects the discussions and outcomes of the second phase of this collaboration, which focuses on key topics for the implementation of Brazil’s New Gas Market (Novo Mercado de Gás).

The paper is structured around six key topics. The first chapter provides an introduction to the regulatory framework enabling market liberalisation. The second chapter focuses on the development, the regulation and operational functioning of the transmission system. A special section has been dedicated to how capacity auctioning and booking systems can facilitate an efficient and cost-effective utilisation of the network. The third chapter provides a detailed analysis of the tools and mechanisms for enhancing the midstream flexibility of the gas system. Midstream flexibility is crucial both in terms of security of gas supply and as a prerequisite for short-term trade development. The fourth chapter focuses on hub development and on those factors which make a hub successful, i.e. a liquid, well-developed market place where demand from market participants is matched with supply in a time- and cost-efficient manner. The fifth chapter provides an in‑depth overview of the regulation of distribution system operators. The white paper includes a special focus section on the role of natural gas and low-carbon gases in Brazil’s clean energy transition and how the deployment of low-carbon gases can be supported by a forward-looking regulatory framework and infrastructure planning.