Interview with Alexandre Chiofetti, President – Gas Trading, Grupo Leros

We firmly believe there is tremendous potential in the country to surpass those 25 MM m/3day: in the short to medium term, new power plants running on natural gas and new and old industrial clients and in the long run, a growing residential and commercial demand.

Grupo Leros is trying to develop a regasification project to bring more LNG to Brazil. What is the demand outlook in the country? 

Growth in Brazil has been, for various reasons, lackluster in the last five or so years and that has reduced (on the demand side), the consumption of Natural Gas. When we look at natural gas demand, it has two main drivers: economic activity, for obvious reasons, and, which to some extent is connected to the economic activity, power generation. Ourselves and many economists understand economic activity should pick up during 2018/2019 which in turn would bring back the direct link to gas consumption, and thus to LNG. On the power generation end, there is a big debate as to whether the natural gas fired power plants should run on a base load or not (many reasons here: preserve water as (i) natural battery and (ii) consumption water; to compensate for the intermittency arising from renewables, lack of possible large new dams), along those lines, the market believes there is room for 6-8GW newly installed capacity in the medium term. In sum, a need for newly installed capacity coupled with a need for base load generation. The Ministry of Energy and Mining and the related bodies appear to be more inclined to accepting that as a viable option. With those two factors together, we understand there is room for Natural Gas to reach a national consumption far above 100MM m3/day (which was touched in 2014), and for such a demand, we see a need for at least 30 MM m3/day of LNG imports, in five years max.

What are the main current challenges that you are facing?

The current market downturn has made our lives a little harder. As we have been in it for so long, some believe it is here to stay; and that is clearly not true. The project is, by nature, quite big and poses a number of challenges, from environmental viability to financial and technical viability. On the flip side and for the exact economic reason, we have been successful in engaging the best consulting and engineering firms in the street such that we have a very robust project. One key point of our project is the fact that it is located in São Paulo, the state with the most strict environmental agency, which, on one hand poses a challenge in terms of licensing the project, but on the other, it obliges us to deliver a state of the art project to be auctioned.

How can LNG suppliers better adapt to fit the needs of potential LNG buyers in Brazil and other Latin American countries?

That has been a big point of discussion at our firm. Brazil has no history of a competitive LNG landscape, neither a power plant running on LNG on a competitive basis (LNG imports have always been controlled by Petrobras, which added LNG as a part of their portfolio, supplying the existing NG Power Plants). That said, it is a brave new world for everyone. Rules on the power auction are tough on the power plant operators/owners and they try to translate that into LNG SPAs, which is something suppliers are not very fond of. With that in mind, we have been very vocal with all entities – suppliers, buyers, and specially regulators – that, in order to have competitive prices, we need base load power plants. 

In June you will be speaking at the 15th CWC World LNG Series: Americas Summit. What are you most looking forward to at the conference?

We firmly believe there is tremendous potential in the country to surpass those 25 MM m/3day: in the short to medium term, new power plants running on natural gas and new and old industrial clients and in the long run, a growing residential and commercial demand. Our project will be connecting to the natural gas transportation grid and we should be able to deliver natural gas to any client in the country connected to the grid. We would like to reach out to firms that share this belief and that would help us build this newborn industry in Brazil, either as suppliers or eventually partners.

 

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