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Brazil natural gas industry makeover lures global firms



The giant offshore discoveries that made Petrobras one of the world’s top crude producers are paving the way for another transformation: French power giant Engie SA, following in the footsteps of Brookfield Asset Management, may be the next investor in line in buying gas distribution infrastructure from Petrobras.

France’s Total SA, the No 2 player in the global liquefied natural gas market, has already bought 50% stakes in two gas-fired plants, and rights to use a nearby import terminal.

The benefits are widespread. Brazil trades off state control to gain investment. Petrobras will get needed cash and can better focus on its crude market. Meanwhile, the gas increasingly churning out of oil gushers off Brazil’s coast stands as a beacon to multinationals seeking growth in an expanding industry.

“We’re starting to see the early stages of a major transformation of the natural gas sector in Brazil, from a virtual monopoly of Petrobras to a competitive market,” oil regulator head Decio Oddone said in an interview. “It was not an official monopoly, but it was a situation of absolute dominance.”

Though the country has just started to come out of a brutal recession, and is still reeling from a massive corruption probe, Brazil has its lures for investors with a longer view.

It’s the world’s eighth largest economy and fifth-most populous country. It has a diversified industrial base that makes everything from aluminium to cars to airplanes, and huge urban sprawls where gas is used to heat water, cooking and as a cheap alternative to gasoline.

The country currently consumes about 3.5bn cubic feet a day of natural gas. That compares with more than 70bn cubic feet a day on average in the US, where harsh winters boost demand for heating. In Brazil, expanding the country’s network of gas pipelines, storage and processing facilities will be key to boosting consumption.

“The industry use is still very low. I have no doubt the natural gas share in Brazil’s energy mix will grow,” Oddone said. “New players running the infrastructure will trigger investments.”

After selling its south-eastern gas distribution assets to a group of investors including Brookfield for $5.2bn in 2016, Petrobras is now taking bids for its 4,500-kilometer (2,800-mile) north-eastern gas pipeline system. Engie is said to be vying for the assets. Bidders were offering as much as $6bn, according to people familiar with the talks.

Oil majors seeking partnerships with Petrobras have included gas assets in their deals. In December, Statoil ASA signed an agreement allowing it to use part of a Petrobras terminal that receives gas from fields off Rio de Janeiro’s coast.

That will give the Norwegian major more autonomy to market its production. Rivals like Royal Dutch Shell and Chevron Corp still need to sell all their gas to Petrobras, which in turn sells it to local distributors in which the state-run company also holds stakes.

Brazil officially opened up the oil and gas market for competition in 1997. But while new players rapidly sought crude prospects, Petrobras remained the sole major gas producer and held on to the country’s gas distribution infrastructure.

The company’s gas assets include four import terminals that process liquefied gas brought by tanker, a 2,000-mile pipeline that brings the fuel from Bolivia and distribution networks that criss-cross the country to take the fuel to power plants, factories and homes. Petrobras is also selling dozens of onshore and shallow-water fields that produce gas.

Production is set to surge as discoveries in the past few years are either entering into production or are due to start. It’s already increased 50% in five years. Starting in 2023, production is set to surpass domestic demand, according to the Brazilian Petroleum Institute, an oil lobby group.