Energy Newsletter | August 2024

Oil and Gas

HIGHLIGHTS

Bill allows for the transfer of surplus local content between existing E&P contracts

On August 26, 2024, Bill No. 3337/2024 was executed, providing for the transfer of the surplus from the minimum local content index between existing oil and natural gas contracts on exploration and production activities (“E&P”).

In this respect, if the mandatory minimum purchase index for Brazilian products is exceeded in any given contract, the percentage surplus can be charged – in terms of pecuniary value – from another contract that does not comply with the minimum percentage of local content.

According to Bill No. 3337/2024, the transfer of surpluses of local content must be requested to the ANP by companies, either individually or jointly, to integrate the E&P contracts, and:

• can be total or partial, at the discretion of the consortium companies;
• cannot be charged twice;
• cannot use surplus credits for the exploration or production phases that have already come to an end;
• will be restricted to contracts in which at least one of the consortium companies is a party; and
• can use surplus credits carried out in environments, phases, stages, and expense groups other than those specified in the destination contract.

The transfer of surpluses will not imply the exclusion of penalties already applied or the extinction of proceedings initiated by the ANP to determine non-compliance with the local content policy.

Learn more: President Lula and Minister Alexandre Silveira execute a bill changing the local content policy to foster domestic hiring | Ministry of Mines and Energy.

CNPE launches National Policy for Energy Transition and other proposals for the oil and gas sector

At a meeting held on August 26, 2024, the National Energy Policy Council (“CNPE”) approved the National Policy for Energy Transition (“PNTE”) and provisioned six other proposals aimed at creating opportunities for sustainable economic development, mainly in the oil and gas sectors.

As indicated by the Minister of Mines and Energy, Alexandre Silveira, the PNTE establishes the guidelines to orient Brazil’s strategy to address the energy transition. This reinforces the Federal Government’s commitment to contributing not only to reducing greenhouse gas emissions but also to generating employment opportunities while ensuring supply safety and combating social and regional inequalities.

Below is a summary of the other measures approved by the CNPE at the time:

• Federal Government’s oil and gas trading operations:

A resolution has been approved, establishing additional guidelines for the Federal Government’s oil and natural gas trading policy, aimed at optimizing the use of inputs from production sharing contracts, boosting industrialization, and strengthening safety in the national supply of energy, oil inputs, nitrogen fertilizers, and other chemical products. The regulation creates conditions for the natural gas produced by the Federal Government to reach consumer agents more effectively, thus defining that Empresa Brasileira de Administração de Petróleo e Gás Natural S.A. – Pré-Sal Petróleo S.A.(“PPSA”) can contract the disposal and processing of the volume of natural gas corresponding to the Federal Government in production sharing contracts. PPSA can also trade natural gas, liquefied petroleum gas (“LPG”), and other liquids produced through natural gas processing to the national market, provided that the technical and economic viability is verified in direct sales.

• Decarbonization in E&P:

A resolution establishing the guidelines for oil and natural gas decarbonization in E&P activities in Brazil has been approved. Among the newly established guidelines, we highlight the incentives for technological development, the reduction of natural gas flaring, the maintenance of zero routine flaring, and the support for shared installed infrastructure. The ANP and PPSA will foment broad transparency involving greenhouse gas emission indicators for oil and natural gas in E&P projects developed across Brazil.

• Development of the fuel market:

A resolution has been approved to update the strategic guidelines for developing Brazil’s fuels, biofuels, and oil derivatives market. The resolution lists several strategic guidelines, including increasing biofuel production, expanding and modernizing the refining park, and fostering energy transition. In addition, a working group has been created to develop specialized studies on the waterway fuel, aviation fuel, and LPG markets.

• Jaspe block:

The CNPE also approved a resolution defining Petrobras’ expression of interest in the Jaspe block, which will be auctioned under the production sharing regime in the next Open Acreage Cycle (“OPC”). According to the Ministry of Mines and Energy (“MME”), the notice for the Open Acreage is scheduled to be published by the ANP by the end of 2024, with an auction scheduled for the beginning of 2025.

• Rubi and Granada blocks:

The CNPE has approved the technical and economic parameters of the Rubi and Granada blocks for a production sharing regime bidding, within the OPC. The parameters for the bidding estimate subscription bonuses that can generate a revenue of BRL 118 million, and a minimum share rate of 11.42 %.

Learn more: ANP participates in CNPE meeting that approved the National Policy for Energy Transition and other proposals for the oil and gas sector | ANP

Decree published on “Gas to Employ” Program: New Gas Law amended

On August 26, 2024, Decree No. 12,153/2024 was executed as a result of the Gas to Employ program. The decree amends Decree No. 10,712/2021 (“Gas Decree”) and includes new provisions to the instrument that regulates the New Gas Law (Law No. 14,134/2021). Decree No. 12,153/2024 reinforces the ANP’s competencies, proposes measures to leverage the demand and diversity of the natural gas market, and creates the National Integrated Plan for Natural Gas and Biomethane Infrastructures.

Below are the main topics addressed by Decree No. 12,153/2024:

a. Safeguarding price-related consumer interests:

Decree No. 12,153/2024 introduced new provisions to Decree No. 10,712/2021 regarding safeguarding consumer interests involving the prices of products within the scope of the oil and gas sector. Among the new provisions established by Decree No. 12,153/2024, we highlight the expansion of ANP’s competencies, whose key attributions, recently published, are listed below:

• 1. Observe the National Integrated Plan for Natural Gas and Biomethane Infrastructures (described as follows);
  2. Establish fair and adequate remuneration for infrastructure holders regarding third-party access for each infrastructure integrating the natural gas chain; and
  3. Foster measures to ensure transparency in price formation and identify the costs of natural gas, its derivatives, and biomethane, as currently charged by market agents.

The ANP must establish the regulations governing the interconnection between the infrastructures in the natural gas sector, considering different logistic methods and network expansion.

The wording introduced by the new decree also highlights that the fair and adequate remuneration, to be further established by the ANP, involves reaching the minimum remuneration intended by the investor for distributing the capital amount invested in the infrastructure (adjusted for inflation and amortized over time), which will have the lowest impact on the price observed by consumers. This measure seeks a fair appropriation of the benefits earned by the sector’s economic agents, society, consumers, and users of goods and services within the scope of the natural gas industry.

b. Safeguarding supply-related consumer interests:

Decree No. 12,153/2024 introduces ANP’s competencies regarding safeguarding product supplies. The critical competencies introduced are highlighted below:

1. 1. Determine the reduction of natural gas re-injection to the minimum necessary amount, also establishing the maximum volume of natural gas to be re-injected;
   2. Determine the increase in natural gas production for production fields, including mature fields;
   3. Determine that new projects with significant volumes of natural gas encompass the possibility of exporting natural gas;
   4. Determine the adequate operational capacity of the infrastructures involved in the production, flow, treatment, processing, and transport of natural gas and its derivatives to meet the expansion of the estimated volume of the natural gas production provided for in the National Integrated Plan for Natural Gas and Biomethane Infrastructures; and
   5. Establish limits to natural gas exports if the ANP verifies that future natural gas supplies will not meet domestic consumers’ demand.

The ANP can also determine the review of the current development plans for oil and natural gas production fields to consider access to production pipelines and natural gas treatment and processing facilities. If the ANP verifies the possibility of increasing the volume of natural gas production, the ANP will demand that development and production plans, as well as projects, be reviewed by current operators so that the necessary investments are made.

Regarding the infrastructures devoted to the production, flow, treatment, processing, and transport of natural gas and its derivatives, the new decree allows the ANP to determine the applicable capacity extensions and adjustments that can be made so that the investment is recognized upon authorization, including the corresponding capital remuneration.

c. National Integrated Plan for Natural Gas and Biomethane Infrastructures:

• • Competences under the Energy Research Company (“EPE”): Decree No. 12,153/2024 states that the EPE will be responsible for drafting the National Integrated Plan for Natural Gas and Biomethane Infrastructures, to be approved by the MME.
  • Plan object: The document will indicate the best alternatives – analyzed systematically – considering the facilities indicated in the studies on expanding infrastructure in the natural gas sector, including its derivatives, biomethane, and energy equivalents. The studies to be carried out by the EPE must include:

1. 1. 1. the definition, by basin or producing hub, of the capacity of the facilities and infrastructures required for outflow, by any logistic method, and processing of natural gas, including numerous blocks and production fields or facilities with a potential for producing natural gas;
      2. the definition, by region or producing hub, of the capacity of the facilities involving biomethane and other types of energy with a regulatory status equivalent to natural gas, including the facilities and infrastructures required for biomethane outflow, by any logistic method, specification, or purification; and
      3. the definition of the processing, treatment, and purification units of natural gas and biomethane, road transport infrastructures, and other logistic methods required to meet the demand for biomethane, natural gas, and its derivatives. Upon drafting the National Integrated Plan for Natural Gas and Biomethane Infrastructures, the EPE can consider the expansion plans submitted by the concessionaires of local piped gas services – approved by the regulatory body – for coordination purposes with the development of the transport system.

• • Agent cooperation: The current authorization or concession holders must submit their facilities’ technical and operational characteristics, including potential expansions, to the EPE. In addition, agents of the natural gas industry, if interested in the infrastructures subject to studies, must provide the information requested by the EPE based on the best available estimates or, where existing, submit the technical data, projects, or studies for analysis and inclusion in the expansion studies of the sector’s infrastructures.
  • The ANP and the National Electric Energy Agency (“ANEEL”): The EPE can request information from the ANP on natural gas production capacities, production, and projection, infrastructures that integrate the natural gas sector subject to authorization, as well as the coordinated plans for developing the transport system, as submitted by the market area’s managers or transporters. ANEEL, in turn, will provide the EPE with information on the maximum potential for natural gas consumption of each thermoelectric plant, indicating its location, as well as the deadlines and amounts of electricity contracted.
  • Public consultation: The EPE will conduct public consultations to validate the studies and the Integrated National Plan of Natural Gas and Biomethane Infrastructures by society before submitting the plan to the MME.
  • Publication: The EPE will publish public interest information intended to define the Integrated National Plan of Natural Gas and Biomethane Infrastructures. This will reduce information divergence among agents in the natural gas industry and offer more certainty to investors and users of natural gas infrastructures.

d. ANP’s role:

The decree states that the ANP must consider the infrastructures and facilities within the scope of the Integrated National Plan of Natural Gas and Biomethane Infrastructures for exercising its competencies, which include:

1. 1. Defining the oil and natural gas exploration and production blocks for bidding, preferably the blocks located in regions where there is the possibility of access to existing natural gas outflow, treatment, and processing infrastructures or where construction or expansion is planned;
   2. Assessing the development plan of a field, which will consider access to existing and planned infrastructures for natural gas production;
   3. Encouraging field operators to keep their production at satisfactory levels, seeking to extract the highest economic value from the field – including the sale of natural gas – to meet the domestic supply, observing the projections of supply and demand underpinning the Integrated National Plan of Natural Gas and Biomethane Infrastructures; and
   4. Granting authorizations for operating within this sector.

e. Public call and authorizations:

The decree empowers the EPE to hold a public call to estimate the effective demand for services in the infrastructures of all the links in the natural gas chain and identify the potential supply and demand for natural gas and its derivatives. The public call will be held preferably by electronic means and will be regulated and supervised by the ANP.

The ANP can authorize interested investors to carry out activities involving the infrastructures and facilities established in the Integrated National Plan of Natural Gas and Biomethane Infrastructures through a public selection process to screen the most advantageous project, considering both technical and financial aspects.

The ANP can also grant authorizations to infrastructures that are not addressed in the Integrated National Plan of Natural Gas and Biomethane Infrastructures – provided that they are compatible with the sector’s plans and do not hinder the efficient and shared use of the existing infrastructures, whose submission to the EPE is permitted for prior assessment.

Decree No. 12,153/2024 also included new wording establishing the occasions on which the ANP can reject or revoke authorizations, such as those listed below:

• 1. if the interested party does not meet the technical, financial, and legal requirements;
  2. if the infrastructure does not comply with the sector’s plans;
  3. if the infrastructure is potentially harmful to the efficient use of other existing infrastructures;
  4. if the infrastructure is not necessary for national supply and impacts consumer price; or
  5. in the event of non-compliance with the regulation edited by the ANP.

If the agent concerned requests an authorization for an infrastructure addressed in the Integrated National Plan of Natural Gas and Biomethane Infrastructures prior to the public selection process, the ANP must establish the challenge period applicable for other parties interested in its implementation to express their interest. If there is more than one interested party, the ANP will carry out a public selection process to choose the most advantageous project, considering both technical and financial aspects.

Below are the minimum requirements established in Decree No. 12,153/2024, to be required from interested parties for receiving an authorization:

• 1. business plan for the investment in the facility, including the total cost;
  2. potential for capacity expansion;
  3. cash flow projected for the investment;
  4. financial criteria adopted in the projected cash flow for the investment;
  5. investment amortization criteria and periods;
  6. remuneration for the capital invested, appropriate to the business risk;
  7. adoption of the Broad National Consumer Price Index (“IPCA”), or any index that replaces it, for the readjustment of the investment amount during the amortization period;
  8. the project’s physical and financial timetable; and
  9. operating and maintenance costs of the facilities.

The ANP will publish the economic parameters approved and used for the authorized infrastructure, including the formula for calculating the tariff as well as the fair and adequate remuneration. Any investment required for operating – provided that it is duly authorized by the ANP – will be incorporated into the regulatory basis of the authorizing agent’s assets.

f. Third-party access:

Upon the publication of Decree No. 12,153/2024, the assumptions for non-discriminatory and negotiated access to the infrastructures devoted to natural gas outflow, treatment, processing, and storage were included in the Gas Decree, on condition that:

• 1. All of those involved in the negotiation can cooperate actively so that access occurs effectively;
  2. Negotiations between the owner and the user in relation to the use of a facility are arranged and carried out upon a sense of integrity and good faith, in compliance with the appropriate corporate governance policies and in such a way that negotiations do not imply a disadvantage to one of the parties at the expense of the other;
  3. The conditions of negotiated access are established in advance by the owner or operator and widely published;
  4. Corporate participation is not required as a condition for access;
  5. Access remuneration is based on objective criteria and takes into consideration a fair and adequate return on investment from an efficient provision of services;
  6. Any refusal to access is duly justified; and
  7. Owners or operators are transparent and provide the data on natural gas facilities.

In addition, it is a requirement for the process of third-party access to natural gas flow, treatment, processing, and storage infrastructures that access negotiations are carried out in good faith between the parties and that:

• 1. negotiations are concluded in compliance with the limits established in the corresponding regulation, in order to achieve a fair and reasonable result;
  2. the terms and conditions are standardized for access to the infrastructures, where possible;
  3. neither party causes delays in negotiations;
  4. the parties provide information deemed important to each other before and during negotiations;
  5. the parties solve conflicts of interest;
  6. the search for a quick conclusion is not used strategically to gain advantages over the other party;
  7. the provision of the service by the operator is carried out upon fair and adequate remuneration, under non-discriminatory conditions among the numerous users, including the proprietary user;
  8. the remuneration for the provision of the service considers the asset depreciation and the amortization of the investment in the infrastructure;
  9. remuneration is appropriate, considering the risks of the operations carried out;
  10. the risks to be undertaken by each party are proportional to the expected benefits;
  11. infrastructure operators negotiate cost-based tariffs, including the possibility of considering the provision of disaggregated services, whenever requested and possible;
  12. the infrastructure operation does not create barriers for third parties joining the natural gas market and its derivatives, and does not hinder competition among agents along the numerous links in the chain;
  13. the contractual sanctions are applied by the infrastructure and facility operator to the parties that have effectively caused them, and proportionately to the potential adverse effects on the infrastructure operation;
  14. the access negotiation process is continuously improved, seeking greater efficiency;
  15. the access conditions are isonomic for equivalent transactions with any user, including proprietary users;
  16. there are no unfavorable conditions for third parties regarding the conditions for the proprietary user;
  17. if the access tariff is settled with part of the production, including for natural gas derivatives, the prices adopted are consistent with those of the market and the other commercial conditions are fair to both parties;
  18. the contracting terms are compatible with the natural gas production expectations of the interested parties;
  19. there is no limitation of production or service provision that affects markets or technical development and that could cause harm to consumers; and
  20. the parties involved in the access negotiation adopt mitigating measures in relation to possible delays in the implementation of the infrastructures and extensions required for third-party access.

The new wording included in the decree also allows the ANP to determine the holder of the infrastructure, the expansion of infrastructure outflow, and the treatment and processing of natural gas to meet the access of interested third parties under penalty of having the facility’s ownership revoked. In addition, the investment must be recognized in the authorization, including its corresponding return on capital.

The ANP can operate ex officio to verify disputes between the parties or indications of potential anti-competitive conduct at any time during the access negotiation.

g. Market and Information transparency:

Decree No. 12,153/2024 included an express provision that if the ANP detects that the supply of natural gas, its derivatives, biomethane, and other type of energy is – or tends to be – lower than the national consumer demand, the ANP can adopt the necessary measures to secure the supply and price (according to items “a” and “b” above). The regulatory agency will also assess the appropriate cost reduction resulting from developing the sector’s regulations, the amortization of investments, and their impact on the price of natural gas to final consumers.

Operators of natural gas production outflow, treatment, processing, transportation, and storage infrastructures will also evaluate and improve the mechanisms for publishing data, to provide potential users with the necessary information on the infrastructures in their areas of interest, including technical, operational, and financial characteristics.

The data and information regarding the characteristics of the infrastructures will be made available by the operators on a single electronic portal, so that the ANP will be responsible for supervising information disclosure.

The decree also authorizes the ANP to execute a conduct adjustment agreement (“TAC”) with agents in the sector, if it identifies evidence of behavior by agents in the natural gas industry or finds any measures that hinder, tend to hinder or prevent the opening up of the market or its liquidity, or that could harm consumer supply or the objectives of the New Gas Law and the Petroleum Law.

In this respect, the ANP must request the adjustment of any instrument (such as supply contracts, infrastructure access contracts, codes of conduct and practice for access to infrastructures, etc.) if it identifies non-compliance with legal or regulatory standards and with international best practices in the oil and natural gas industries. The ANP can also establish restrictions, limits, or conditions for the use of infrastructures by owners and companies interested in access, seeking to ensure effective competition among agents, especially with regard to obtaining and transferring ownership, accessing infrastructures, authorizations, corporate concentrations, and business transactions between related parties.

h. Transitional provisions:

Decree No. 12,153/2024 establishes that operators of existing infrastructures must submit to the ANP’s approval—within 180 days of the decree’s publication—a proposal for a regulatory basis of assets calculated using widely recognized methodology, which considers asset depreciation, investment amortization, and capital remuneration.

The annual readjustment criterion underpinning the regulatory base of assets will consider the IPCA, verified and disclosed by the Brazilian Institute of Geography and Statistics (“IBGE”), or any other index that replaces it as an instrument of monetary correction.

It was also established that, when the regulatory actions relating to transportation tariffs are not concluded, the ANP will preferably adopt the postal modaity for transportation tariffs. The decree defined the postal tariff as the uniform tariff charged to all shippers in the natural gas transportation system, regardless of distance, location in the pipeline network, and their operator, which can be differentiated between entry and exit.

To this end, the ANP will define transitional mechanisms for transferring revenue between carriers operating in the natural gas transportation system.

Learn more: Entities show support for the Gas to Employ Decree | Brasil Energia

NEWS

Increase in national oil and natural gas production for June 2024

On August 02, 2024, the National Agency for Petroleum, Natural Gas, and Biofuels (“ANP”) released the monthly report on oil and natural gas production for June 2024, whose consolidated data on national production revealed an increase in oil and natural gas production compared to May 2024, as well as an increase in pre-salt production.

Regarding oil, 3.409 million barrels per day (bbl/d) were extracted – representing an increase of 2.7% compared to the previous month, and 1.3% compared to the same month in 2023. As for natural gas, 150.07 million cubic meters per day (Mmm³/d) were produced in January – an increase of 3.1% compared to May 2024, but a drop of 1.4% compared to June 2023.

The total production (oil + natural gas) in the pre-salt in June 2024 was 3.424 million barrels of equivalent oil per day(boe/d), which corresponds to 78.7% of the overall Brazilian production, representing an increase of 3.3% compared to the previous month and 5.6% compared to the same month in 2023.

Learn more: Increase in national oil and natural gas production for June 2024 | ANP

Decree encouraging the sale of assets in the refining sector is revoked

On August 26, 2024, President Lula executed a decree revoking the last act addressing the selling process of refining assets in Brazil, thus reinforcing Petrobras’ new investment policy.

In light of this, the Integrated Technical Committee for the Development of the Fuel Market, Oil and Biofuels Derivatives (“CT-CB”) was also extinguished, which addressed the selling process of Brazil’s refining assets.

Lula and Alexandre Silveira execute decree extinguishing the last act aimed at putting an end to the selling process of Brazil’s refining assets | Ministry of Mines and Energy

Provisional measure provides tax incentives for the production of tankers in Brazil

Provisional Measure 1255/24 (“MP”) was published on August 27, 2024, and provides incentives for the naval industry and the oil sector.

The new MP allows for the use of the accelerated depreciation mechanism for new tankers built in Brazilian shipyards and used for transporting oil and its derivatives across Brazilian ports. Through accelerated depreciation, the companies entitled to a benefit enjoy a reduction in the Corporate Income Tax (“IRPJ”) and the Social Contribution on Net Profit (“CSLL”).

According to the MP, the accelerated depreciation quotas will be established by a decree issued by the Federal Executive Branch. The benefit will cover tankers whose contracts are executed by December 31, 2026, provided that they start transporting oil and derivatives across Brazilian ports from January 01, 2027. The granting of accelerated depreciation will be limited to BRL 1.6 billion and will be effective between 2027 and 2031. The MP is already in force and will be put to voting in the House of Representatives and Senate to become a law.

Learn more: Provisional measure provides tax incentives for the production of tankers in Brazil | Câmara Notícias

MME provides final reports on “Gas to Employ” Program

On August 29, 2024, the MME published the reports on the Gas to Employ working group (“GT-GE”).

The Mines and Energy minister, Alexandre Silveira, pointed out that the reports highlight GT-GE’s efforts to contribute to the increase in the supply of natural gas and the reduction of its price, improving companies’ competitiveness and generating income and jobs within the country.

The reports are divided into five thematic axes, as listed below:

• Thematic Committee Report 1: Natural Gas Availability (“NG”)
• Thematic Committee Report 2: Access to the NG market
• Thematic Committee Report 3: Federal Government’s NG trading model
• Thematic Committee Report 4: Gas for the Productive Sector
• Thematic Committee Report 5: NG’s role in energy transition

Learn more: GT-GE: final reports are published on the MME website | Ministry of Mines and Energy.

POWER 

HIGHLIGHTS