CHALLENGES AND OPPORTUNITIES FOR SOUTH CONE INTEGRATION: GAS AND POWER INFRASTRUCTURES

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1 CHALLENGES AND OPPORTUNITIES FOR SOUTH CONE INTEGRATION: GAS AND POWER INFRASTRUCTURES Session - Regional Integration May, 22, 2017 Giovani Vitória Machado Superintendent of Natural Gas and Biofuels Título da Palestra Título do Evento

2 ABOUT EPE

3 BASIC INFORMATION ABOUT EPE Founded by Law 10,847/ 2004 Energy Research Office - EPE aims at carrying out studies and researches to support the Ministry of Mines and Energy in elaborating the energy planning of Brazil. Governmental body linked to the Ministry of Mines and Energy Member of the National Council for Energy Policy - CNPE, with voting right. Headquarter office in Rio de Janeiro, having around 320 employees.

4 INSTITUTIONAL ARRANGEMENTS IN THE ENERGY SECTOR OF BRAZIL: THE ROLE OF EPE CNPE National Council for Energy Policy MME Ministry of Mines and Energy CMSE Power Sector Monitoring Committee ANP National Agency for Oil, Natural Gas and Biofuels ANEEL National Agency for Electric Energy EPE Energy Research Office CCEE Electric Power Trading Chamber ONS Electric System National Operator Governmental Duties Regulatory Duties Special Duties

5 Organization Structure of EPE Administrative Council Fiscal Council Board of Directors Chief Executive Officer Luiz Augusto Barroso Directory of Energy Economics and Environmental Studies Directory of Power Studies Directory of Oil, Gas and Biofuels Studies Directory of Corporate Management Ricardo Gorini Amilcar Guerreiro José Mauro Coelho Álvaro Pereira

6 PRODUCTS SUPERINTENDÊNCIA & PUBLICATIONS DE GÁS NATURAL E BIOCOMBUSTÍVEIS SGB / DPG

7 WEBMAP EPE: AN USEFUL TOOL FOR REGIONAL INTEGRATION STUDIES GAS AND POWER LAYERS WebMapEPE/

8 PRODUCTS SUPERINTENDÊNCIA & PUBLICATIONS DE GÁS NATURAL E BIOCOMBUSTÍVEIS SGB / DPG

9 OVERVIEW OF THE GAS & POWER INFRASTRUCTURES IN BRAZIL

10 4,000 km BRAZILIAN POWER SYSTEM BRAZIL EUROPE May 2017 Installed Capacity ~135,000 km ( 230 kv) Electricity Consumption 162 GW 541 TWh/year (2016 average) Peak Demand 85.7 GW (05/02/2014) Consumer Units 80.9 x 10 6 (March 2017) Hydro 64.9 % Thermal 26.9 % Nuclear 1.3 % Wind 6.9 % Source: ONS, ANEEL

11 NATURAL GAS INFRASTRUCTURE Supply Demand (2016 average) Million m 3 /d Total Supply National Supply Pipelines Imports LNG Imports 3.81 Total Demand Nonthermoelectric 48,30 Thermoelectric 31,96 Pipeline Own Use/adjust 4.28 Source: MME (2017). 15 Processing Zones (95 MMm³/d) 3 Existing LNG terminals (41 MMm³/d) km Transmission pipelines 179 Operating citygates WebMapEPE/

12 NATURAL GAS BALANCE INTEGRATED NETWORK Draft projections How many indicative open cycle gas-fired thermoelectric plants in the integrated network? To deal with peak load and renewable intermittences in power sector

13 KEY UNCERTAINTIES IN SUPPLY AND DEMAND Bolivia 30 MM m 3 /d, 20 MM m 3 /d, 16 MM m 3 /d? Natural gas pre-salt availability? CO 2 content, distance from shore, price competitiveness Natural gas onshore resources? Potential versus gas discovers LNG regasification capacity expansion? New terminals Path of economic recovery? Role of gas-fired thermoelectric plants to deal with base and peak loads and renewable intermittences? Under discussion New interconnections to neighbor countries? South Cone?

14 LNG Terminals: existing, planned and announced 3 Existing LNG terminals (41 MMm³/d) 3 Planned LNG terminals (42 MMm³/d) 5 Announced LNG terminals ( x MMm³/d) New LNG terminals: How many will really be constructed? Which will be the role of LNG in Brazil? Could it be new interconnections to South Cone? Gas & Power?

15 SOUTH CONE INTEGRATION: GAS AND POWER INFRASTRUCTURES

16 LATIN AMERICA SITUATION: GAS & POWER FIGURES Electricity Figures Gas Figures

17 POTENTIAL FOR SOUTH CONE NATURAL GAS SUPPLY INCREASES Reserves and Yet to Find Resources Country Proved Reserves (tcm) Yet to Find Resources F50 (tcm) Conventional Unconventional Argentina Bolivia Paraguay Peru Uruguay Sources: EIA (2013), APEC (2013), CEDIGAZ (2014), USGS (2012). LNG Capacity in South Cone Country Existing Terminals (Million m 3 /d) Planned Terminals (Million m 3 /d) Argentina 31 16* Brazil 41 42** Chile *** Uruguay 0 10**** Sources: BnAmericas (2017); EPE (2017). Notes: * Bahia Blanca 16 Millions m 3 /d (expansion up to 30 Millions m 3 /d); **Sergipe/SE 14 Millions m 3 /d + Rio Grande/RS 14 Millions m 3 /d + SUAPE/PE 14 Millions m 3 /d ; *** Penco 15 Millions m 3 /d (under construction) + Mejillones 4.5 Millions m 3 /d (expansion up to 10 Milions m 3 /d); **** GNL Del Prata 10 MM m 3 /d (under construction).

18 WHAT ABOUT ANOTHER SOLUTION FOR SOUTH CONE COUNTRIES? Energy Security Diversify sources of supply Flexibility and reliability Economic development Income and job creation Efficiency Complementarities Resources allocation Satisfying demand/market access Win-win situations Affordability to consumers Social and Environmental benefits Sinergy to other strategical projects

19 GAS TO GROW INITIATIVE

20 GAS TO GROW INITIATIVE Objective To propose actions to improve the legal and regulatory framework in the gas sector to address the disinvestment of Petrobras Vision A natural gas market with diversification of agents, liquidity, competitiveness, transparence of information and best practices, which contributes to economic growth of the country Strategical Guidelines International best practices, investment promotion, competitiveness, diversification of agents, transparence of information, marketorientated framework, and respect of contracts.

21 GAS TO GROW PROGRAM National Council for Energy Policy CNPE established a Committee for the Development of the Natural Gas Industry Third Part Access to Essential Facilities Gathering/Production pipelines Processing Plants LNG Terminals Transportation & Storage Distribution Commercialization Improvement of taxes structure Natural gas as feedstock Natural gas of the Union (mainly, from PSA) Integration of Natural Gas and Power Industries

22 FINAL REMARKS

23 PERSPECTIVES FOR THE GAS & POWER INDUSTRIES IN BRAZIL From depression to economic growth: how long will it take? Expectations of national gas supply growth and GNL regas capacity expansion Key uncertainties: natural gas availability from pre-salt and Bolivia, price competitiveness and actual demand growth Role of LGN: depends on other competitive supplies, but operational flexibility and supply security for the network is an asset Major changes ahead towards a more transparent, open, diversified, efficient, competitive, and market-orientated gas & power industries in Brazil Transition matters Respect for contracts, keep market functionality, predictive changes in regulations and policies, careful implementation of improvements Challenges and opportunities in Brazil Divestment processes of Petrobras Natural gas legal and regulatory framework improvements ( Gas to Grow ) Power regulatory framework and procedures improvements

24 CHALLENGES AND OPPORTUNITIES FOR SOUTH CONE INTEGRATION IN GAS & POWER INFRASTRUCTURES Challenges Regional agreements to enforce contracts, system reliability and contingency rules in order to improve business environment Investments in network integration Regulatory and market integration Market access, competition, open access and price convergence Opportunities To take advantage of complementarities To increase efficiency and competitiveness To provide flexibility To assure energy security To find win-win situations

25 Avenida Rio Branco, 1-11 o andar Centro - Rio de Janeiro Facebook: EPE.Brasil