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

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

Although the undertaking may indeed benefit Brazil with an alternative to importing Bolivian fuel, the investment could be more advantageous for the country if it were directed to the gas transport infrastructure in the national territory.

Today, almost three quarters of the natural gas produced in Brazil comes from exploration of the pre-salt layer, through offshore platforms. Practically half of what is extracted, however, ends up reinjected precisely because of the lack of structure for disposal.

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

Reducing by half the volume of reinjected gas would enable investments of around R$ 98 billion in new projects in the chemical, petrochemical and fertilizer industries, which use hydrocarbon compounds as raw material, according to the Coalition for the Competitiveness of Natural Gas Matéria -Cousin.

The entity, which brings together representatives of these sectors and the natural gas industry, calculates that the amount would allow an increase of R$ 402 billion in the nominal Brazilian Gross Domestic Product (GDP), in addition to generating 2.8 million new jobs, increasing R$ 54 billion to the salary mass and increase by R$ 9 billion the State collection through taxes. 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), energy sector consultancy.

According to the CBIE, Brazil’s pipeline network for transporting natural gas is around 9,500 kilometers long, while Argentina has 16,000 kilometers of pipelines for fuel, although its territory corresponds to one third of Brazil’s territory. “So, should the BNDES’ investment priority be the gas pipeline in Argentina? Is it possible that there aren’t other infrastructures in Brazil to invest in first?”, asks Rodrigues.

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

The law that privatized Eletrobras provides for the construction of five new gas pipelines to transport natural gas in order to inland access to the input and meet the demand for new thermoelectric plants. The projects included in the Indicative Plan for Transport Gas Pipelines (PIG) ​​of the Energy Research Company (EPE) add up to approximately one thousand kilometers in length, at a cost of R$ 20.5 billion.

BNDES should finance BRL 4.2 billion for the construction of an Argentine gas pipeline

Work on the first stage 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, equivalent to R$48.84 billion at current exchange rates.

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

According to the newspaper O Estado de S.Paulo this week, however, the value should reach US$ 820 million (R$ 4.16 billion). Details such as the fee system, deadlines and guarantees should be dealt with during a trip by the 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, to the border with Brazil. The BNDES would provide resources to finance the manufacture of tubes 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 reinjecting practically half of the natural gas that is extracted from the pre-salt 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, from the Ministry of Mines and Energy, updated until October. The volume corresponds to 34.2% of the entire supply of the input in the country in the period (72.45 million cubic meters).

Of the total imports, 69.6% came 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 needs to go through a regasification process to be used.

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

“When we talk about the supply of natural gas, any offer that Brazil has of a cheaper product is beneficial. Increasing the supply of gas, from the point of view of the market, is good”, says Pedro Rodrigues, from the CBIE. “But the project has some questions that we have to do.”

In addition to the contradiction of investing in an Argentine gas pipeline in the midst of a scenario of scarce gas transport structure in Brazil itself, there are questions regarding 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.

Communities of the Mapuche indigenous people and small farmers who inhabit the Vaca Muerta region are said to be among the most affected populations, according to the non-governmental organization 350.org, which criticizes the Brazilian government’s announcement.

According to the entity, 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 the gas obtained in the region, who depend on firewood to heat their homes”, says a note from the organization.

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

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

Rodrigues, from the CBIE, says that technological advances have made it possible to mitigate its environmental risks. “What exists in this aspect is this incongruity: 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 from shale and we are helping to build a pipeline to bring this gas.”