Mauricio Medinaceli Monrroy
Private Consultant
Oil - Natural Gas - Energy

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The natural gas market in Brazil: Do we (as Bolivians) have reasons to get worry?

Everything started on a sunny Saturday morning when I was ready to give a bath to my little dog, at that moment at home made me notice two things: 1) we are close to winter and; 2) It's 8 o clock in the morning. With such reasons, I “spent” my time reviewing the local press and found this headline: "Ambassador of Brazil [in Bolivia] anticipates that the gas demand will be greater [in Brazil]" (http://bit.ly/2rVL7Tw).

Curious about this quote I went to the magnificent web page of the Ministry of Mines and Energy of Brazil to the stats section about the natural gas market in our neighboring country (http://bit.ly/2kdi6ip). What I found is very interesting and for that, I want to share it with you.

First, the following Figure shows the natural gas in Brazil. Since 2016 there is a notable decrease in total demand (almost 20 million cmd). This is high, just remember that Bolivia - Brazil GSA is just over 30 million cmd.

diapositiva01 

Why the demand in Brazil decreased? The following figure helps us to see that this decrease responds, mainly, because a drop with the power generation plants volumes. Although the industrial sector declined, it did not do so in such magnitude.

diapositiva2 

In the headline I mentioned, the ambassador pointed out:

"Now the economy is growing, which will grow to almost 3% so the demand for natural gas will be greater. When the economy grows, all industrial and commercial activities and everything else grows. "

Certainly, the data does not support this perception. Why? Because with a high probability the demand for natural gas in Brazil decreased because hydro generation increased, decreasing the demand for thermo generation. Not necessarily because the industrial sector consumes less gas.

How did Brazil adjust its gas supply? The following figure is very illustrative. Let's see. The blue bars represent the domestic production of natural gas in Brazil, the red ones are the Bolivian natural gas supply and the gray represents LNG imports. This is how Brazil faced a lower demand: significantly reduced LNG imports, decreased imports from Bolivia and increased... yes, increased Brazilian domestics natural gas production.

diapositiva3 

And if you think that this scenario (from the Bolivian perspective) is not a good one. Let me show you the following Figure where I present the reinjection of natural gas in Brazil. Reinjection? It turns out that when a country produces natural gas and has no markets for this product faces, at least, two options: 1) burn natural gas or; 2) reintroduce this gas again into underground (reinjection). Then, with high probability, Brazil is anxious to "accommodate" these volumes (reinjected) to their own market... because, come on, reinjection costs a lot of money.

 diapositiva4

How does it affect Bolivia? If Brazil has such volumes of natural gas re-injected, it may not be convenient for this country so sign a new GSA (with Bolivia) with high “take or pay” volumes... perhaps. I must add that this observation came from a very good friend from Santa Cruz de la Sierra.

Well my dear friends I hope these statistics will help you to understand the much-loved Brazilian market. For my part, now we will go with the Santi (my son) to give some bad news to “Boti” (our little dog)... it’s “bath time” (really bad time for him).

Have an excellent Saturday!

Mauricio Medinaceli Monrroy

La Paz, May 19th 2018

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