Brazil is a pivotal player in the global energy landscape and even more now, with a natural gas market that is reshaping the trajectory of the local energy sector. In 2024 alone, the country witnessed a 15% surge in natural gas consumption, underscoring this resource’s critical role in bridging the gap between traditional fossil fuels and renewable energy sources.
While much can be argued about Brazil’s vast domestic reserves and remarkable internal consumption potential—which are undoubtedly important— a massive differential promoting this progress is its capacity to unlock what many call a “transition economy,” where infrastructure modernization, regulatory innovation, and private-sector investment converge to propel Brazil into a new era of energy development.
Brazil is not a newcomer to the workings of green energy. Over 87% of its power supply comes from renewable sources. Decades before the present days’ electric-car-fever, potential depletion of fossil fuel reserves posed a lower threat to mobility in the country: since the 1990s, most cars are mandatorily equipped to run on sugarcane ethanol while trucks can operate on green diesel.
Within this context, the Brazilian government sees gas as a transition fuel, a tool suited to meet Brazil’s dual objectives of sustaining industrial growth while advancing towards decarbonization. In other words, with natural gas Brazil hopes to simultaneously:
- lower carbon emissions,
- remain friendly to more traditional investors and players,
- modernize infrastructure, regulation and consumers to accommodate for non-fossil gas alternatives, and, ultimately,
- use these investments and traditional know-how to strengthen locally experienced players to undertake the future challenge of an even greener energy matrix.
While challenges do remain at the heart of this transformation, a once-in-a-lifetime opportunity presents itself for those investors looking to insert themselves into one of the most auspicious green economies in the world.
This article delves into how the growth of Brazil’s natural gas market is unlocking the potential of a transition economy. By examining the set-up, the buid-up and the takeways of this trend, we hope to provide an insight into the broader implications for stakeholders navigating (or wishing to navigate) this rapidly evolving landscape.
The Set-Up
After a long road of policymaking and regulatory review aiming to open the Brazilian natural gas market to new players (other than the state-owned monopolist Petrobras), the state of entropy of the sector finally seems to have reached a point where a reasonable number of new players are finding their places in gas trading (including LNG), developing new infrastructure and implementing transactions on the premise of the reliability of such resource.
This wave of new trade and investment also aligns with Brazil’s anticipated natural gas expansion, driven by major offshore discoveries, the completion of critical outflow infrastructure, the start of operation of LNG regasification terminals along its extensive coastline, the facilitation of third-party access to essential infrastructure, and prospects for deeper integration with neighbouring gas-producing countries like Argentina and Bolivia.
Consumers are finding the environment to try new suppliers, which not only includes the usual suspects, like Petrobras, major oil companies and local distribution companies, but also a number of “outsiders” in new Brazilian gas ventures. A growing number of companies focused on leveraging agility and diverse risk profiles, such as financial market, power and logistics companies are now partnering with more traditional players to develop gas infrastructure and trading ventures or even starting up entirely new gas trading branches.
While the actual and projected increase in supply and demand can help justify this sudden interest in the gas industry, one must wonder in the midst of a climate emergency era, what makes the gas market in Brazil so interesting, even in the face of all the complexity of this market and constant threats of displacement by green energy alternatives?
The first answer to this question lies on the consistent (leaving aside some political noise, which is always part of the show) political will and commitment by lawmakers with the development of natural gas supply and demand in the country. Since 2016, the Brazilian government has been on a crusade to advance legislation and take effective measures to this end.
It is acknowledged by all the potential, the wealth and security that a stable natural gas market can offer to the country’s future.
The more significant movements started with a Petrobras’s divestment program, which released key gas infrastructure across the country to new and independent players. The ‘Gas to Grow Program’ followed and lead to the 2021 “New Gas Act”, which introduced important new legislation to foster competitiveness of local gas trading via broad access to infrastructure. In the meantime, restrictions were imposed on Petrobras by the Brazilian antitrust authority, Administrative Council for Economic Defense (CADE).
More recently, in 2024, the presidency enacted a comprehensive decree strengthening regulators’ prerogatives to fend-off anticompetitive practices, as well as to ensure broad third-party access to that gas infrastructure still under Petrobras’s control.
The key takeaway in this respect is that, despite the significant changes in ideologies of key elected officials since 2016, governments show political commitment towards the development of a robust internal gas market. Although, inevitably, there are challenges and the pace of change is always slower than desired, investors can see the trend of progress and positive signals that projects are less likely to be affected by changes in political winds.
This note on political aspects ties into our second answer to the question posed above: the undeniable synergies between gas and green energy projects in Brazil.
Brazil’s impressively green energy matrix—explained in the introduction—is a result of long-term government policies and subsidies to foster the integration of green energy projects into the energy matrix.
This history of reliance on public incentives to spur innovation and attract private investment in renewable energy (specially with biofuels, wind, and solar energy) such as incentivized financing alternatives for these types of projects from the National Bank for Economic and Social Development (BNDES) programs.
For instance, between 2010 and 2023, Brazil’s wind power capacity grew almost fiftyfold (from 2TW to 95TW), largely due to consistent government-backed financing and favorable regulations for tax incentives and private financing.
A similar commitment is materializing in respect of other renewable energy sources, such as biomethane and hydrogen.
Within the context of developing the natural gas market and making it more attractive to new investors, we also see efforts from the Brazilian government in making way for greener alternatives to fossil gas, placing its higher bets on hydrogen and biomethane.
Natural gas players can take advantage of these incentives to diversify their portfolios, leveraging existing infrastructure for dual purposes and enhancing overall energy efficiency.
Initiatives in such respect are discussed in greater detail in the following sections, sufficing to note now that the most competitive gas players in the Brazilian market (traditional and newer ones) are currently negotiating their way into the biomethane and hydrogen markets—or have already done so. With some of such players already incorporating biomethane to their supply portfolios, the production of the green gas had a 23% spike in 2023 alone.
Therefore, the foundation for Brazil’s natural gas market growth not only lies on robust and healthy supply and demand projections, but also in the creation of a secure, competitive trading platform for today while also paving the way for investors to thrive in the future green economy as fossil fuels are gradually phased out.
The Build-Up
2024 was the year in which Brazil undeniably entered its yellow brick road towards a new gas market.
Alongside a 15% surge in natural gas demand, important investment decisions were made, launching key projects aimed at expanding infrastructure and enhancing the capacity to absorb supply in coming years:
In 2025, gas transmission capacity is expected to increase by 20 million cubic meters a day, due to the start of operations of two new pipelines in the northeastern region, a key area for consumers market development (Gasfor II and CT Sergipe—which will connect Sergipe’s LNG Regasification Terminal to the transmission network).
Also in 2025, a total of nine LNG Regas Terminals will be operating in Brazil, spread across the entire Brazilian coastline and connected to major consumer markets.
Until 2029, three new production outflow pipelines (each with a capacity of 16~18 million cubic meters a day) will be completed connecting important E&P offshore basins to the shore markets.
Regulation also evolved in many aspects, the most important being those aimed at allowing consumers to procure their natural gas supplies from a variety of sellers, no longer depending on Petrobras or their local utility company.
In later 2024, in light of all such developments, technical branches within energy policymaking bodies forecasted an astounding 64% increase in gas demand by 2034.
This prospect of increased demand, greater supply and lowering prices has already brought about a noticeable surge in gas trading. The fast-growing market share of novel gas traders in more industrialized states illustrates this trend. For example, In São Paulo, the market share of different gas traders supplying “free consumers” have increased by 800% with the turn of the year into 2025.
The influx of new players into gas trading brings broader innovations and associated legal challenges. Just to list a few of these innovations:
- the transmission system is increasingly becoming the “marketplace” for trading gas volumes;
- a variety of gas trading solutions are being implemented, such as put, call and swap transactions;
- contracted tolling arrangements are being agreed between producers, importers and infrastructure owners; and
- structures are being designed to facilitate the capacity sharing in LNG Terminals.
While a lot of it was sparked from government initiatives setting up new basis for the market, regulation on key matters is still lacking. Most of the legislative modernisations introduced by the New Gas Act remain subject to further regulations from National Oil and Gas Authority (ANP), but players in the market are relying on existing regulation and innovative contractual arrangements to continue pushing forward.
This relative regulatory uncertainty is also not stopping the current wave of enthusiasm by gas players in biomethane related projects. It is no coincidence, therefore, that the expansion in natural gas activities fosters growth in the biogas and biomethane sectors in Brazil. For instance, the existing know-how built for the gas sector, as well as policies and Brazil’s strategic climatic, spatial, and commercial advantages, has, over the past decade, led biogas production in Brazil to surge from 561 million Nm³ to over 3 billion Nm³, with projections suggesting it could reach 5.7 billion Nm³ by 2033.
Biomethane (also known as “renewable natural gas”) is obtained via the purification of the biogas generated from organic waste (which can come from landfills, urban sewage, agriculture, livestock, pig farming and dairy cattle).
Biomethane production relies on organic waste and multiple gas utility companies are undergoing infrastructure adaptations to allow injection of the renewable gas in existing gas pipelines. This overlap minimizes the capital intensity traditionally associated with green energy projects, making them more attractive in a market increasingly focused on sustainability. A 2023 study by the International Energy Agency (IEA) highlighted that integrating biomethane into gas grids could reduce emissions by up to 40% in key markets like Brazil, demonstrating the environmental and economic benefits of this approach.
The enthusiasm over the renewable natural gas sector in Brazil also finds support in how biofuels are integrated within the Brazilian energy matrix. This integration is the result of a longstanding political drive to stimulate the development of the Brazilian agricultural industry and was initially implemented via the establishment of multiple subsidies for the introduction of sugar cane ethanol – and, more recently, of biodiesel – into all automotive fuels marketed to final consumers in the country. For instance, in 2022, Brazil ranked as the world’s second-largest producer of ethanol, generating 30.6 billion litres, accounting for 29% of global production. Of this total, 26.5 billion litres originated from sugarcane, while 4.1 billion litres were derived from corn.
The global movement toward alternative fuels, emphasizing sustainable or renewable energy sources in the transition to a low-carbon economy, has increasingly highlighted the importance of these well-established value chains. While many countries are still developing pioneering projects and initiatives, Brazil focuses on refining and advancing its already consolidated programmes.
The synergy between sugarcane and ethanol industry and the biogas sector has proven exceptionally productive as well. As a matter of fact, this synergy enables the production of biogas with a potential comparable to that derived from large urban landfill sites but with the added advantage of yielding energy with higher concentrations of biomethane and without many of the contaminants typically found in landfill-derived biogas.
Considering all these factors, Brazil has leveraged mechanisms such as: (i) RenovaBio, a trading market for decarbonization credits (CBIOs), originally structured in 2017 under the Biofuels Policy Act for ethanol and biodiesel, which was later expanded to include the biogas and biomethane sectors; and more recently (ii) the National Decarbonization Program for Natural Gas Producers and Importers and the Biomethane Incentive Program, approved in 2024 under the Future Fuel Act, which establishes certifications for the origin of biogas and biomethane (CGOBs) and mandatory decarbonization targets for the natural gas sector to stimulate market development; among other (iii) federal and regional tax incentives; (iv) sustainable assets (carbon markets) and benefits (such as “green credit lines” and “green subsidized loans”), and (v) reputational benefits that the usage of biogas and biomethane grants.
Noticeably, every additional revenue, cost reduction and tax incentive related to the environmental integrity and sustainable assets available are considered to compose the economics of biomethane projects. For that matter, CBIOs, CGOBs, carbon offsets, and carbon allowances plays pivotal role, thus they have been structured to monetize different aspects of the project and are destined to different markets with different purposes. In sum, the programmes have mechanisms to avoid double counting and to grant the environmental integrity of each asset, preventing any possible overlap within projects being an unnegotiable pillar of the RenovaBio, Biomethane Incentive Program and, more recently, to the Brazilian Emissions Trading System, approved in December 2024 by the Brazilian Carbon Market Atc.
A learning curve still lies ahead of Brazilian government and other stakeholders, prompting investors’ attention to challenges of the economic feasibility of biofuels projects, such as entry barriers, transaction costs and residual regulatory uncertainty. Nevertheless, there are effective measures and projects being implemented, a race for the best opportunities, and contracts being structured with different business models to optimize deals according to the manifest political will to ensure Brazilian international protagonism as a solid sustainable bioeconomy.
The Takeaways
Brazil’s natural gas market is not just expanding; it is strategically positioning itself as a cornerstone of the global energy transition. This evolution highlights the country’s ability to leverage its vast energy resources, regulatory advancements, and innovative synergies to attract investors aiming to align profitability with sustainability.
Key takeaways from this transformation include:
- A Robust Platform for Growth: Brazil’s commitment to fostering a competitive and secure natural gas market has created fertile ground for investments. Regulatory reforms, such as the New Gas Act and subsequent decrees, have enabled broader access to infrastructure, paving the way for new players and bolstering market confidence despite political shifts. The potential outweighs the associated complexities.
- Natural Gas as a Transition Fuel: Positioned as a bridge between traditional and renewable energy sources, natural gas is driving decarbonization while supporting industrial growth. This dual role underscores its importance in balancing environmental and economic objectives.
- Integration with the Green Economy: The seamless integration of biofuels like biomethane with existing regulatory frameworks and government programs exemplifies Brazil’s innovative approach to sustainability. Initiatives such as the Biomethane Incentive Program and the National Hydrogen Plan further enhance the sector’s potential, aligning with global decarbonization trends.
- Opportunities for New Players: The influx of non-traditional stakeholders, including financial and logistics firms, signals the market’s appeal beyond traditional energy players. This diversification fosters innovation and competition, reshaping Brazil’s energy landscape.
- Future-Ready Infrastructure: Investments in LNG regasification terminals, pipelines, and facilities adaptable to greener fuels ensure the sector’s readiness to accommodate future energy needs, including hydrogen production and distribution.
While challenges such as regulatory gaps and financing complexities remain, the momentum of Brazil’s gas sector offers a unique opportunity for long term investors. By bridging the demands of a growing energy market with the promise of a sustainable future, Brazil is solidifying its role as a global leader in the transition economy. The country’s energy sector is not only evolving but thriving as a model for how traditional resources can propel a greener, more sustainable future.