Box 1.5 Brazil’s gas market reform: developing a competitive market

In 2016 the Brazilian government launched the “Gas to Grow” programme, looking to improve the market-oriented regulatory framework in order to boost both domestic production and consumption of natural gas, now being developed further by the new administration. The programme seeks non-discriminatory third-party access to pipelines, processing plants and LNG terminals, as well as enforcement of an independent transmission system and creation of entry– exit zones with liquid virtual trading points.

To develop a competitive wholesale market in the country, a reduction in Petrobras’s dominant position is foreseen though a partnership and divestment programme (PPI, Programa de Parcerias para Investimentos:

At the end of 2015 Petrobras finalised the sale of 49% of Gaspetro (natural gas distribution company) to Mitsui for USD 593 million (Petrobras, 2015). Gaspetro controls Petrobras ’stake in 19 state-run natural gas distributors.

In April 2017 Petrobras finalised the sale of 90% of Nova Transportadora do Sudeste (NTS) to a Brookfield Brazil Asset Management fund for USD 5.2 billion. Petrobras will continue using the pipeline, and Transpetro (Petrobras’s transport company) will continue the operation and management.

In April 2019 it was announced that a consortium led by Engie had won the bid for a 90% share of Petrobras’s TAG pipeline, with an USD 8.6 billion offer (Kar-Gupta, 2019). Canada’s provincially owned financial and investment firm Caisse de Dépôt et Placement du Québec is also in the consortium. TAG operates 4 500 km of pipelines in the north and northeast of Brazil, representing 47% of Brazil’s entire gas infrastructure.

Sources: Petrobras (2015), "Conclusion of sale of interest in Gaspetro”, www.investidorpetrobras.com.br/en/press- releases/conclusion-sale-interest-gaspetro; Kar-Gupta, S. (2019), “Engie-led consortium seals $8.6 billion purchase of Petrobras pipeline unit”, Reuters, www.reuters.com/article/us-petrobras-divestiture-tag-engie/engie-led-consortium-seals-86-billion- purchase-of-petrobras-pipeline-unit-idUSKCN1RK0M1.

Africa

Africa’s natural gas consumption grew by almost 7% in 2018, thanks mainly to the strong development of domestic production in Egypt. In 2019 Egypt is set to remain the main driver of gas consumption growth in the continent, with the bulk of the increase provided by the power generation and chemicals sectors.

Africa’s gas consumption is expected to grow by an average of 2.7% for the coming five years, to reach almost 180 bcm/y by 2024 (Figure 1.32), slowing from its recent strong year-on-year increases as North African markets reach a certain level of saturation. North Africa – which currently accounts for 80% of the continent’s gas demand – remains the main source of consumption growth, driven by Egypt’s power generation and industrial sectors.

Figure 1.32. Natural gas consumption by country and sector, Africa, 2004–24

North Africa is expected to account for the majority of natural gas consumption growth in the near future, led by the needs of the Egyptian power and industrial sectors.

Egypt

Egypt is Africa’s largest natural gas market, with an estimated 60 bcm consumed in 2018 – or about 40% of the region’s total natural gas demand. Natural gas consumption has increased steadily since 2016 with the development of domestic offshore production from the Mediterranean. Power generation is the main driver of this growth, with power demand tripling since 2000 – an increase mainly attributed to the development of the industrial sector and the growing use of electronic equipment in the residential sector. This forecast expects continuous growth of Egyptian natural gas consumption, at an average annual rate of about 4% for the next five years.

Power generation capacity is dominated by gas-fired thermal plants (over 90% of installed capacity) and surged in 2018 from 42 GW to an estimated 58 GW, mainly due to the commissioning of natural-gas fired capacity (principally new projects, as well as some conversion of open cycles to combined cycles). This included the three 4.8 GW high-efficiency CCGTs of Beni Suef, El Burullus and New Capital in the north of the country, which were inaugurated in mid-2018 (Table 1.8). Additional power capacity projects from renewable sources (solar and wind) are under development, to help achieve the country’s 8th Five-Year Plan target of 20% renewables in the power mix by 2022. The Egyptian Electricity Holding Company assessed the plan’s requirements to meet electricity demand and concluded that no additional thermal generation was needed to 2022 beyond capacity already under construction (EEHC, 2017).

Domestic electricity demand growth is expected to remain dynamic, and the government’s electricity policy includes a phase-out of subsidies and the introduction of private wholesalers in 2021, followed by electricity trade liberalisation by 2022 (Egypt Today, 2018). The electricity surplus will be exported according to a specific regional electricity export programme targeting neighbouring countries in Africa, Europe and the Middle East. Egypt already exports electricity

Power generation remains the strongest component of domestic consumption, with an average 4.7% annual growth over the past decade and accounting for almost 45% of natural gas use. About 95% of electricity is produced from natural gas. State-owned operator Sonelgaz, which supplies electricity and operates the electricity and gas grids, has carried out development programmes for both networks ensuring coverage of 99% of the population for electricity and 60% for natural gas. Algeria’s gas-fired power generation fleet is underutilised, with 5 GW to 7 GW of unused capacity out of a total of 20 GW. Sonelgaz plans to develop exports to neighbouring countries in North Africa and to Spain16 in order to generate additional revenues and to enhance its utilisation rate. Energy Minister Mustapha Guitouni announced in January 2019 that negotiations were under way with Spain to solve tax-related issues and enable the state-owned company to operate on the Spanish electricity wholesale trading market (APS, 2019).

Algerian regulatory agency CREG assumed in its 2019 ten-year gas and electricity development plans the development of some 1.8 GW of thermal and renewable capacity to match additional electricity demand needs, with a central assumption of 2.2% annual gas consumption growth for power generation over the next decade (CREG, 2019). This forecast takes a more conservative approach, with a decrease in natural gas consumption over the first years linked to the commissioning of renewable capacity followed by a rebound triggered by growing domestic electricity demand, thus resulting in a stable gas-for-power demand level between 2019 and 2024.

Industrial use of natural gas covers one-quarter of total consumption and has grown at a dynamic average rate of almost 10% since 2012, led by the building materials and petrochemicals sectors. State-owned oil and gas production company Sonatrach reported in early 2019 several petrochemical joint ventures under negotiation to monetise its natural gas through channels other than pipeline and LNG exports. Industry is therefore expected to remain the main driver of natural gas consumption growth in the near future.

Residential and commercial demand is set to remain stable, with limited consumption growth owing to gas already having high market penetration. The energy sector’s own consumption also stagnates as domestic oil and gas production is not expected to grow in the near future.

Other North Africa

Natural gas development prospects in Morocco remain limited in the medium term. Power generation accounts for almost all of the country’s natural gas demand, with a CCGT inaugurated in 2005 (Tahaddart, 385 MW) and another in 2010 (Ain Beni Mathar, 470 MW). The project to develop an LNG import terminal in Jorf Lasfar – to reduce dependence on Algerian gas imports and further develop gas-fired power generation – is still officially under consideration, but seems to be challenged by the gas discovery in the Tendrara region as well as the objective to develop renewable energy sources.

Tunisia’s natural gas demand remained stagnant over the recent past and is expected to remain so in the coming years. It relies on both domestic production and Algerian imports for its gas supply. The Nawara field development – expected to start production by mid to late 2019 – will reduce dependence on imports, but is not intended to increase domestic consumption as the country aims to develop power production from renewable sources. It has the objective of