New Decree Regulating the Gas Law Published

On August 27, 2024, Brazilian President Luiz Inácio Lula da Silva signed five documents at a ceremony to approve the national energy transition policy: (i) revoking Decree 9.928/19, which established the Technical Committee for the Development of the Fuel and Other Petroleum Derivatives and Biofuels Market; (ii) Decree No. 12.153/2024, which amends Decree No. 10.712/21 and regulates Law 14.134/2021 regarding the offloading, handling, processing, underground storage, conditioning, liquifying, regasification, and commercialization of natural gas; (iii) a Bill of Law on Local Content; (iv) a Bill of Law addressing accelerated depreciation for tankers; and (v) a Bill of Law creating a new type of Gas Assistance.

However, it was Decree No. 12.153/2024 (the “Decree”) that attracted the most attention from the market. The Decree was expected as a result of the program instituted by the National Energy Policy Council (CNPE) known as “Gas to Employ” (“Gás para Empregar”), which aims to increase the supply of natural gas and reduce the cost to the final consumer, contributing to the creation of employment and revenue for Brazil.

Below are the main topics addressed by the Decree.

1. National energy security planning

The Decree increases participation and assigns a range of new responsibilities to the National Agency of Oil, Natural Gas and Biofuels (ANP), which will now play a more active role in the sector. The Decree also establishes that the Energy Research Company (EPE) will be responsible for drafting the National Integrated Natural Gas and Biomethane Infrastructure Plan (the “Plan”), which will consider:

• the public interest;
• the long-term supply and demand development strategy for natural gas as described in the National Energy Plan;
• meeting society's expected demand over a ten-year period, in line with the indications set out in the Ten-Year Energy Expansion Plan, considering the economic sectors that are potentially intensive in the use of natural gas, including its derivatives, biomethane, and energy sources treated as natural gas;
• the optimization and availability of infrastructures in order to maximize the production of national energy resources;
• the best use and sharing of current and new infrastructures and facilities, including those out of operation or which have been decommissioned;
• indicating the need for infrastructures with sufficient capacity to meet expected demand over time, or to allow for future expansion, taking into account existing infrastructures;
• the efficiency of infrastructure, individually and globally, to advocate for the lowest systemic cost impact over time and contribute to the moderation of the prices of natural gas and its derivatives, without jeopardizing supply and quality; and
• the rules for interconnection between infrastructures, which account for the most appropriate logistics modes for supplying regions that demand, or may demand, natural gas, under the terms of ANP regulations.

In order to do this, EPE will be able to request data on the potential production of the reservoirs, existing structures and levels of production and use from the ANP, as well as the maximum consumption of gas-fired power plants from ANEEL.

ANP should also promote coordination between oil, natural gas, biogas, and biomethane producers, with a goal of providing input for EPE's sector planning while also promoting access to, and sharing of, infrastructure.

Additional guidelines for the Plan may be established by act of the Minister of State for Mines and Energy.

Once completed, the Plan should be submitted for public consultation, and subsequently submitted to the Ministry of Mines and Energy (MME) for approval.

The infrastructures and facilities defined in the Plan should be considered by the ANP when defining O&G exploration and production areas.

Accordingly, preference will be given to areas where it is possible to access existing natural gas offloading, treatment, and handling infrastructures, or where such infrastructure is planned to be built or expanded.

2. Protecting consumer interests in terms of price

In order to serve the interests of consumers with regard to the final price of gas, the Decree assigns the following responsibilities to the ANP:

• Transparency and competition. The ANP must prevent conditions that may favor the practice of infractions against the economic order. In this sense, the ANP is also responsible for regulating the supply chain in order to foster a competitive environment for the sale of natural gas, derivatives and biomethane.

• Licensing. ANP must establish the requirements necessary to obtain the respective licenses, in order to promote a competitive environment and open up the market. See below for more information on how the ANP issues licenses. 

• Interconnection. The Decree is clear in giving ANP the authority to establish the rules for interconnection between infrastructures in the natural gas sector, taking into account the various associated logistics modes and the expansion of networks, with a view to better structuring the competitive market.

• Third-party access. The Decree also gives ANP responsibility for establishing fair and adequate remuneration for the owners of pipeline infrastructures for third-party access, in line with the risks of the activity, for each infrastructure in the natural gas chain. According to the Decree, “fair and adequate” remuneration consists of the minimum remuneration for the capital invested in the infrastructure intended by the investor, adjusted for inflation and amortization over time, which will reflect the least impact on the price observed by the consumer. For other essential infrastructures, third-party access continues to be negotiated, and is not regulated as a tariff.

3. Protecting consumer interests in relation to the offer

In order to protect consumer interests in terms of the supply of products, the Decree establishes that ANP must continually monitor the continuity and security of supply, within predetermined deadlines.

Furthermore, in order to guarantee the supply of natural gas and its derivatives, the Decree makes ANP responsible for adopting measures such as:

• The carrying out of new bids for oil and natural gas exploration and production areas;
• Determining—by means of a prior administrative process with consultation with the companies, respecting technical and economic feasibility—the reduction of natural gas reinjection to the minimum necessary, including the establishment of the maximum volume of natural gas to be reinjected;
• Determining—by means of a prior administrative process in which the companies may comment—the increase in natural gas production for fields in production, including mature fields;
• Determining—by means of a prior administrative process in which the companies are heard—that new projects with significant volumes of natural gas include the possibility of exporting natural gas;
• Determining the suitability of, or increase in the operational capacity of the infrastructures for, the production, disposal, treatment, processing, and transportation of natural gas and its derivatives to meet the increase in the estimated volume of natural gas production contained in the National Integrated Plan for Natural Gas and Biomethane Infrastructures to be prepared by EPE, in order to meet the interests of consumers and the national supply. In this case, the investment must be recognized in the license, with the corresponding return on capital;
• Encouraging field operators to maintain their production at satisfactory levels, with a view to extracting the greatest economic value from the field—including the sale of natural gas—in order to guarantee the national supply, keeping with the supply and demand projections considered when preparing the National Integrated Natural Gas and Biomethane Infrastructure Plan.
• Establishing limits on the export of natural gas when it is determined that the future supply of natural gas will not be sufficient to meet the demand of national consumers, in accordance with the guidelines of the CNPE.

To comply with the abovementioned measures, the ANP will revise the current development plans for oil and natural gas production fields, in order to consider access to production pipelines and natural gas treatment and processing facilities.

ANP may also, in the process of reviewing development plans already approved and future development plans, evaluate the use of natural gas production units shared between several fields, and the transfer between existing production units with unused natural gas processing capacity.

The Decree also stipulates that, when it identifies the possibility of an increase in the volume of natural gas production, the ANP will order the current operators of the respective fields to review their development and production plans and projects in order to make the necessary investments to increase capacity. The appropriate legal and contractual penalties will be imposed.

4. Licensing for the offloading, processing, treatment, transport, and underground storage of natural gas

Licensed facilities must follow the National Integrated Natural Gas and Biomethane Infrastructure Plan (to be prepared by EPE) and have sufficient capacity to meet future demand or allow for capacity expansions. 

The ANP will offer interested investors licenses for the activities of the infrastructures and facilities included in the National Integrated Natural Gas and Biomethane Infrastructure Plan, through a public selection process to choose the most advantageous project, taking into account technical and economic aspects.

The ANP may grant licenses for infrastructures that are not included in the National Integrated Natural Gas and Biomethane Infrastructure Plan, as long as they are compatible with sector planning and do not hinder the efficient and shared use of existing infrastructures, with submission to the EPE for prior evaluation permitted.

Minimum requirements for licensing infrastructure:

I - business plan for the installation's investment, with the respective total value;
II - capacity expansion potential;
III - projected cash flow for the investment;

IV - economic criteria adopted in the projected cash flow for the investment;
V - investment amortization criteria and timeframes;
VI - return on capital invested, in line with the business risk;
VII - adoption of the Broad National Consumer Price Index (IPCA), or an index that may replace it, for readjustment of the investment value during the amortization period;
VIII - the project's physical and financial timetable; and
IX - operating and maintenance costs of the facilities.

The ANP will publish the economic parameters approved and implemented for the licensed infrastructure, including the formula for calculating the tariff and the fair and adequate remuneration. Regulatory operational efficiency targets will be established for each tariff review cycle.

The Decree also provides for the possibility that ANP may reject a license application, or revoke licenses already granted, if: (i) the infrastructure does not demonstrate compatibility with sector planning; (ii) the infrastructure proves to be potentially harmful to the efficient use of other existing infrastructures; or (iii) the infrastructure is not necessary for national supply and has an impact on consumer prices.

All these concepts must be defined or regulated by the ANP at a later date.

5. Third-party access to essential infrastructure.

The Decree lists the following conditions for non-discriminatory and negotiated access to natural gas offloading, treatment, processing, and storage infrastructure:

• access conditions must be negotiated established in advance by the owner or operator and publicly disclosed;
• corporate participation must not by a condition of the access;
• remuneration for access must be based on objective criteria and considers a fair and adequate return on investment, based on the efficient service provision; and
• any refusal of access must be duly justified.

Regarding the negotiation of third-party access to natural gas offloading, treatment, processing and storage infrastructures, we highlight the following assumptions:

• terms and conditions are standardized for access to infrastructure, whenever possible;
• neither party causes delays in negotiations;
• the service operator receives fair and adequate remuneration, under non-discriminatory conditions between the various users, including the owner-user;
• infrastructure operators negotiate tariffs on a basis of cost, with the possibility of also considering the provision of unbundled services where requested and possible; and
• access conditions are isonomic for equivalent transactions with any user, including owner-users.

The ANP can act on its own initiative to verify disputes between the parties at any time during the negotiation of access, or at the indication of possible anti-competitive conduct, with the exception of the powers of the Administrative Council for Economic Defense (CADE).

6. Measures to open up the natural gas market and increase the supply of natural gas, its derivatives, and biomethane

The ANP may sign a term of adjustment of conduct with industry agents when it identifies evidence of behavior or measures which hinder, are likely to hinder, or prevent the opening up of the market or its liquidity, or which could harm the supply to consumers.

Existing infrastructure access contracts will be adjusted whenever there are regulatory developments by the ANP or updates to the regulations on third-party access to infrastructure, or to the codes of conduct and practice for access to infrastructure.

The Decree also provides that the ANP may establish restrictions, limits, or conditions for the use of infrastructures by their owners and by companies interested in access, with a view to promoting effective competition between agents, especially with regard to obtaining and transferring ownership, access to infrastructures, licenses, corporate concentration, and business between related parties.

Finally, infrastructure operators will have 180 days to submit proposals for the regulatory base of assets to the ANP, which may adopt transitional values for the regulatory asset base and uniform postal tariffs for natural gas transportation during the regulatory transition period.

A Natural Gas Sector Monitoring Committee will also be set up to advise and monitor public policies.

For more information, read the full text of Decree 12.153/2024.