Brazil’s cabinet working to lower natgas prices, increase chemicals competitiveness – vice president

Jonathan Lopez

04-Dec-2023

SAO PAULO (ICIS)–The Brazilian government is working to reduce natural gas prices to help the chemicals industry and aims to reduce the so-called ‘Brazil cost’ of doing business in the country, its vice president said on Monday.

Geraldo Alckmin, who also leads Brazil’s Ministry of Development, Industry, Commerce and Services (MDIC), added the cabinet presided by Luiz Inacio Lula da Silva since January is “aware” of the difficulties the chemicals industry faces due to high input costs and the competition from more competitive imports.

Alckmin, currently acting president as Lula is travelling in Europe after taking part in the UN’s COP28 climate summit in Dubai, was speaking to delegates at the annual assembly of Brazil’s chemicals trade group Abiquim in Sao Paulo.

NATURAL GAS
The vice president conceded the country’s high natural gas prices, compared with the US, the other large chemicals producer in the Americas, are a drag for an industry he considered key to rebuild Brazil’s industrial fabric, a target set by Lula to create more manufacturing jobs.

“Lula established MDIC to focus on creating industrial jobs and expand manufacturing. We are aware we have a problem with energy costs and natural gas costs in Brazil. In the US, natural gas prices stand at around $4.5/MMbtu, while in Brazil they stand at around $12/MMbtu,” said Alckmin.

“Natural gas prices in Brazil have fallen slightly and the government is working towards achieving a larger fall.”

Brazil’s cabinet has a commanding voice in the decisions taken by Petrobras, the state-owned energy major, which is a large producer of crude oil and natural gas.

However, Brazil’s gas needs are hardly covered by domestic demand and the country is heavily import dependent. Abiquim has for years been saying that more domestic output of natural gas and associated natural gas liquids (NGLs) is key to help the competitiveness of the chemicals industry globally.

However, given the unmet demand in the residential sector as well as the fertilizers industry, some petrochemicals players think the sector would come last in the list of priorities in the case of higher domestic natural gas output.

Alckmin said there were “some good news” as Brazil’s domestic output could increase considerably in 2024 as Petrobras finalises the long-running construction of infrastructure to bring gas from offshore fields to its Itaborai facilities in Rio de Janeiro.

“In 2023, Brazil produced 50m cubic metres [cbm] and this could increase in 2024 by more than 15m cbm at Itaborai. Extracting gas in the US is easier than here: they do it inland, we do it 3km offshore and at 5km depth [in pre-salt fields],” said Alckmin.

“Brazil can increase domestic natural production and that will have a positive effect in strategic industrial sectors such as chemicals.”

Brazil’s polymers producer Braskem, Latin America’s largest petrochemicals company, has repeatedly said that more NGLs output at Itaborai would allow it to expand its facilities in Duque de Caxias, Rio de Janeiro.

BRAZIL COST: LESS REGULATION
The so-called ‘Brazil cost’ (Custo Brasil in Portuguese) refers to the country’s barriers to doing business, ranging from the regulatory and tax burdens, the existence of cartels in several economic sectors, corruption in public bodies, or a complex fiscal legislation, among many others.

Alckmin said the government is working hard to pass the fiscal reform currently being debated in parliament, which would simplify the several taxes Brazilian households and corporates have to pay.

He said around 10% of the Brazil cost comes from the regulatory burden, and he listed the three key protectionist measures passed by the government this year, all of them reversing decisions taken by the prior Jair Bolsonaro Administration.

“We are aware of the chemicals industry’s competitive problems, not least with the global fall in prices which have caused imports into Brazil to rise sharply. That is why, in April, we reverted the fall in import tariffs in some polymers, and did so again in November,” he said.

“We have also brought back REIQ [a tax break for some chemical inputs], which is also to greatly help the sector.”

Alckmin preferred to see the glass half full when it came to Brazil’s economy, which this year greatly surpassed expectations thanks to a strong agricultural season.

Inflation has fallen since the 2022 peaks, which has prompted the Banco Central do Brasil (BCB) to lower interest rates three times since August, although “they remain high” at 12.25%, added the vice president.

“However, we cannot rest in our laurels. Improving the competitiveness of Brazil’s economy remains our great challenge,” he concluded.

Front page picture: Brazil’s vice president Geraldo Alckmin at the annual assembly of chemicals trade group Abiquim
Source: ICIS

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