A cubic meter of natural gas costs US$0.07 in the United States. Here, it reaches US$0.44.
In other words: for every US$1 million that a thermoelectric plant there spends on this fuel, one here spends US$6 million. “Scale 6 x 1”. And we’re not even talking about exchange rates, since the comparison is always in dollars – no matter how much the American currency costs.
This is why our electricity bill goes into red flag when the level of hydroelectric plants drops. At these moments, the thermal plants are activated, and most of them are powered by natural gas, which is worth its weight in gold in Brazil.
The industry that needs heat also suffers – such as food and beverages, which requires gas for pasteurization, drying, etc. Fertilizer factories also suffer; natural gas molecules (pure methane) are raw materials there. Given the high price on the national market, 85% of our fertilizers are imported.
Natural gas is expensive in Brazil because the amount we produce here does not meet demand. What arrives from Bolivia, imported via gas pipeline, is also not enough to complement. All that remains is to bring LNG, liquefied natural gas – usually from the USA. And this one is much more expensive, as it travels by ship.
More. Before boarding, the gas needs to be refrigerated to -162 ºC. And when it comes out, it has to go through regasification to enter Brazilian pipes. All of this, plus shipping, costs a lot. And the price of gas here is going through the roof – because the price of LNG ends up determining the value of the gas produced here, and also that which comes from Bolivia, even though transporting these is not that expensive.
See how we are today:
In years of drought, with hydroelectric plants at the point of death, the import of LNG booms. In 2021, for example, 26 m³/d were brought into Brazil. Much more than what arrives from Bolivia. Worse. The reserves there are running out, due to lack of investment in prospecting. The estimate is that, in 10 years, they will only be able to send a maximum of 5 million m³/d.
The most realistic alternative to avoiding collapse is to find another external supplier who can sell to us via pipeline – preferably in a quantity large enough to reduce our dependence on LNG. And the good news is that it happened.
15 years ago, when Petrobras was beginning to explore the pre-salt, Argentina discovered a monstrous reserve of natural gas on its lands, close to the border with Chile. It’s the Vaca Muerta area, a gas-filled geological formation the size of Alagoas (named after a nearby mountain range of the same name).
READ MORE: Brazil ‘returns to the earth’ 4 times more natural gas than it imports
Since the beginning of the last decade, extraction has been developing. Argentina depended on gas from Bolivia, as we. No more. And it became an exporter – it ships to Chile via gas pipelines. But there are still at least 8.7 trillion cubic meters to explore. And Brazil is an obvious destination for the gas that is waiting there.
So much so that on November 18th the governments of Brazil and Argentina signed a “memorandum of agreement” with the idea of facilitating trade in piped gas between the two countries – given the strategic interest for both.
Argentina gains a source of hard currency; scarce resource there. And Brazil has cheap natural gas, a scarce resource here. According to the Ministry of Mines and Energy, Argentine gas would reach our distributors for US$0.26 to US$0.30 per cubic meter – up to 40% less than today.
Below is a table to better illustrate, now with prices per million BTUs (British Thermal Units), the market standard (which is equivalent to 26.8 cubic meters).
The expectation is to close 2025 with 2 million m³/d coming from Vaca Muerta, as the first supply contracts are signed. And the objective is to reach 30 million m³/d by 2030 – which would reduce our dependence on LNG even in a scenario of strong increase in demand for natural gas in the coming years.
READ MORE: With persistent drought, Brazil evaluates more LNG imports in early 2025
Not bad. So much so that a week after the memo, on November 27, the first deal was announced: the French TotalEnergies, one of several oil and gas companies operating in Vaca Muerta, closed a gas export agreement with the Brazilian Matrix Energia. Because the piping to bring gas from the foot of the Andes to the shower in your house was already ready.
Road ready
In an irony of the gas market, the path from Vaca Muerta to Brazil was already paved. The Argentine gas pipelines that brought Bolivian gas there already passed through cities that are located in the Vaca Muerta area.
As Argentina stopped importing gas from Bolivia, it is possible to reverse direction. The gas from the brothers goes up to Bolivian lands and from there flows into the Brazilian gas pipeline network.
To reach 30 million m³/d, more structure will be needed. But what exists today is enough to get the ball rolling.
And Vaca Muerta brings an unusual advantage. “The icing on the cake is the fact that we are in a window where there is no alignment between governments”, says Rivaldo Moreira Neto, director of the infrastructure area at consultancy Alvarez & Marsal.
Rivaldo’s point is the following. If Lula and Miley were on their honeymoon, it is likely that the state oil companies of both countries would take over the playground, with YPF and Petrobras monopolizing all Argentina-Brazil supply agreements – in a move that is inimical to competition and friendly to high prices.
He cites the case of Bolivian gas as an example. “The Brazilian market was never able to go and get gas itself. It was always Petrobras (next to YPFBa Bolivian state)”. Due to its dominance in the market, Petrobras has always tabulated natural gas using the price of LNG, which is more expensive, as a reference.
The case of Vaca Muerta is very different. 25 oil and gas companies operate there – including Petrobras, which has a 34% stake in a field, along with YPF and Pampa Energía, a private group from Argentina. On the Brazilian side, the game is the same: distributors here begin to source their gas from Vaca Muerta on their own, in an environment of free competition that produces lower prices.
Good for all parties.
Thanks: Diogo Lisbona, researcher at FGV Ceri – Center for Studies in Regulation and Infrastructure.
