Lessons learned from Brazilian natural gas industry reform

Abstract

Over the past decades many countries have reformed their infrastructure industries. Although these reforms have been broadly similar for the most part, aiming at introducing competition in potentially competitive segments, the contexts in which they have been carried out differ. This is due to the past regulatory experience in each country, the maturity of the industry and/or the number of agents when the reform process started. The Brazilian natural gas reform stands out due to the country's singular conditions. The development of the natural gas industry in Brazil was grounded on stepping up supplies through integration with neighboring nations (particularly Bolivia) and establishing a competitive environment by lowering the barriers hampering the arrival of new investors. However, natural gas is located at the crossroads of two main energy chains: oil and hydroelectricity. This article analyzes the Brazilian natural gas reform, and extracts lessons from this process. The low capillarity of transportation and distribution systems continues to be the main bottleneck of the country's natural gas industry. The challenges of the new legal framework are to encourage investments in networks and guarantee supply, to allow the industry to consolidate and mature, against a backdrop of rapid changes in the world market.