Brazil wants to finance Argentine gas pipeline, but “wastes” pre-salt gas

In addition to the financial risks and the discussion of ideological bias in the decision-making process, the announcement of the federal government’s intention to finance the construction of a gas pipeline in Argentina for the flow of input to the Brazilian market exposes a contradiction, according to industry insiders.

While the firm could actually benefit Brazil with an alternative to imported Bolivian fuel, the investment could be more beneficial to the country if it were directed at the gas transportation infrastructure in the country.

Today almost three quarters of the natural gas produced in Brazil comes from the exploration of the pre-salt layer, through offshore platforms. Virtually half of what is extracted, however, ends up being re-injected due to the lack of a disposal facility.

According to the National Agency of Petroleum, Natural Gas and Biofuels (ANP), an average of 2.07 billion cubic meters were returned to wells monthly in 2022, equal to 49.6% of all Brazilian fuel production . The world average of gas reinjection is around 20%.

According to the Coalition for the Competitiveness of Natural Gas Matéria -Cousin, halving the volume of reinjected gas would allow investments of around R$ 98 billion in new projects in the chemical, petrochemical and fertilizer industries, which use hydrocarbon compounds as feedstock first. .

The body, which brings together representatives of these sectors and the natural gas industry, calculates that the amount would allow for an increase of R$ 402 billion in nominal Brazilian gross domestic product (GDP), as well as generate 2.8 million new jobs, increasing R$ 54 billion to the wage bill and increase state collection through taxes by R$ 9 billion. Last week the data were presented to the Minister of Mines and Energy, Alexandre Silveira, according to the specialized magazine Megawhatt.

“Brazil is a country that has a very poor gas pipeline network, with few kilometers of transport routes compared to other countries, including Argentina itself,” says Pedro Rodrigues, partner and director of the Brazilian Center for Infrastructure (CBIE), consultancy firm in the energy sector.

According to the CBIE, Brazil’s natural gas pipeline network is about 9,500 kilometers long, while Argentina has 16,000 kilometers of fuel pipelines, although its territory corresponds to a third of the territory of Brazil. “So, should the BNDES’s investment priority be the gas pipeline in Argentina? Is it possible that there is no other infrastructure in Brazil to invest in first?” Rodrigues asks.

He stresses that, in addition to routes for transporting offshore production, the country could invest in a fuel internalization network. “Today, only 2% of the Brazilian population has access to natural gas for domestic use, while 98% of people still use only gas cylinders,” she says.

The law that privatized Eletrobras provides for the construction of five new gas pipelines for the transport of natural gas in order to access the input by land and satisfy the demand for new thermoelectric plants. The projects included in the Energy Research Company’s (EPE) Gas Pipeline Indicative Plan (PIG) ​​amount to approximately one thousand kilometers in length, costing R $20.5 billion.

BNDES is expected to finance BRL 4.2 billion for the construction of an Argentine gas pipeline

Work on the first phase of construction of the Néstor Kirchner gas pipeline in Argentina has been underway since 2021 and has so far consumed an investment of 180 billion pesos, equal to R$ 48.84 billion at current exchange rates.

Last December, the Argentine government announced that BNDES would finance US$689 million (about R$3.49 billion at current exchange rates) for the construction of the second phase of the pipeline, local press reported.

According to the O Estado de S.Paulo newspaper this week, however, the value is expected to reach 820 million US dollars (R$4.16 billion). Details such as the tariff system, deadlines and guarantees are expected to be addressed during a trip by Argentine Economy Minister Sergio Massa to Brazil in early February.

The second section of the pipeline will allow the flow of gas extracted from the Vaca Muerta reserve, in the Neuquén basin, in Patagonia, up to the border with Brazil. The BNDES would provide resources to finance the production of pipes by a Brazilian company, which would participate in a bidding process for the work.

More than a third of the natural gas consumed in Brazil is imported

While re-injecting virtually half of the natural gas it extracts from pre-saline fields, Brazil imported, on average, 24.79 million cubic meters of fuel per day in 2022, according to data from the Natural Gas Industry Monitoring Bulletin, of the Ministry of Mines and Energy, updated until October. The volume corresponds to 34.2% of the entire input supply in the country in the period (72.45 million cubic metres).

Of the total imports, 69.6% comes from Bolivia, while the rest is imported in the form of Liquefied Natural Gas (LNG) from countries such as the United States, United Kingdom, Nigeria, Angola, Argentina, Singapore, Qatar, Trinidad and Tobago and Switzerland. In this state, the raw material is transported on ships and to be used it must go through a regasification process.

Most of the demand for the product in the country (60.6%) is destined for use in refineries, fertilizer factories and the use of gas as an industrial raw material. About 23% is consumed by thermoelectric plants, for the production of electricity, and another 9.2% as automotive fuel. Domestic uses correspond to only 2.1% of the demand for natural gas.

“When it comes to natural gas supply, any offer Brazil has of a cheaper product is beneficial. Increasing the supply of gas, from a market perspective, is good,” says Pedro Rodrigues, of the CBIE. “But the project has some questions we need to ask.”

In addition to the contradiction of investing in an Argentine pipeline in the midst of a scenario of poor gas transport structure in Brazil itself, one wonders about the socio-environmental impact of the project, which would go against the commitment of the current Brazilian government in relation to the defense of the environment and indigenous peoples.

The Mapuche indigenous communities and small farmers who inhabit the Vaca Muerta region are among the populations most affected, according to the non-governmental organization, which criticizes the Brazilian government’s announcement.

According to the body, the province of Neuquén, although it is a center of oil and gas exploration in Argentina, continues to be one of the poorest and most indebted in the country. “In the municipalities where fracking is extracted, there are thousands of families without access, even to gas obtained in the region, who depend on firewood to heat their homes”, reads a statement from the organization.

The Vaca Muerta reserve is a geological formation rich in the so-called shale gas, or shale gas, a type of rock with a laminated appearance that houses fossil fuels in the ravines. The process of extracting gas from this type of formation is known as “fracking” (from “hydraulic fracturing”), because it requires fracturing the soil and adding water and other compounds to liberate the hydrocarbons.

The technique is criticized by environmentalists because it is considered harmful to the environment and to the health of the population living near the exploration fields. Several countries prohibit the procedure, which is not regulated in Brazil.

Rodrigues, of the CBIE, says that technological advances have made it possible to mitigate its environmental risks. “What exists in this aspect is this inconsistency: in Brazil we have shale gas, but for environmental reasons we do not explore this potential. But we import gas from the United States that is made of shale and we are helping to build a pipeline to bring this gas.” .

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