IEEE Power & Energy Magazine - November/December 2014 - 33

natural gas sectors have led to the development of creative
solutions for this integration, as well as major clashes and
setbacks over the years.

The Integration and Disintegration Years
A jump start of the gas-to-power business in Brazil came
in 2000 with the construction of the 3,200-km Bolivia-
Brazil pipeline, the longest gas pipeline in South America. The pipeline was originally dimensioned to transport
8 million m3 per day to serve industrial sector demand, but
in 2000 its import capacity was revised upward to the current 30 million m3 per day in order to supply a large amount
of newly planned gas-fired generation. These plants were
intended as an emergency response to the critical situation
of Brazilian electricity supply at the time (which culminated in electricity rationing in 2001), and power purchase
agreements (PPAs) were signed with distribution utilities to
ensure their commercial feasibility. These PPAs allowed full
pass-through to consumers of the terms of the GSA offered
by Petrobras, including oil-indexed gas prices and take-orpay clauses for 70% of the contracted volume.
The postrationing years, however, saw abundant hydro
inflows and reduced consumption (demand did not recover to
prerationing levels due to energy efficiency gains that were
permanently incorporated into consumers' habits). As a consequence, by the time most of this new gas-fired capacity
came online in the 2002-2005 period, the electricity sector
had little need for it because hydro generation was sufficient
to meet 95% of the load. This situation motivated the gas
supplier to relax the take-or-pay clauses of the GSA and
divert the surplus gas to other uses. The resulting influx of
inexpensive "surplus" gas enabled new firm industrial loads
to emerge, and the use of natural gas in vehicles was also
promoted. This "overbooking" of firm gas sales ultimately
resulted in a massive failure to obey dispatch instructions

from the electricity system operator, however, when a dry
season hit the country in 2006-2007.
The episode serves to illustrate the large deficiencies in the
integration of the gas and electricity industries in Brazil at the
time. Because the GSAs signed with both the power sector and
the industrial sector generally lacked up-front terms regarding the interruption of gas supply, the decisions about which
loads to cut in case of overbooking were made haphazardly,
and the penalties applicable to the gas supplier as a result of
the imprudent management of these contracts were unclear.
This situation motivated several research projects on how to
better coordinate the two sectors, with a particular focus on
improving the official centralized dispatch models of the electricity sector in order to better represent the limitations in fuel
supply and transport, giving a more realistic view of Brazilian
long-term system reliability. Ultimately, the power sector was
able to assert its position as the first-priority gas consumer,
subjecting thermal generators to harsh financial penalties in
case of any fuel unavailability and therefore imposing on the
gas producer the burden of ensuring a firm gas supply to the
thermal power plants in the absolute worst-case scenarios.
In addition, it became clear that domestic gas demand
had grown to a point that the available gas supply (including Bolivian imports as well as domestic production from
existing and future fields) was insufficient to meet demand
while obeying the electricity sector's reliability requirement. As a consequence, Petrobras proposed to build LNG
regasification terminals to bridge this gap between supply
and demand. This decision triggered a new era of gas and
electricity integration.

The Emergence of LNG:
Integrating Supply into the Electricity Market
The contribution of LNG to the Brazilian gas supply
grew quickly. There are currently three functioning LNG

Mean Monthly
Energy Spot Price (US$/MWh)

400
350

Several Consecutive Months of Full Dispatch
(and/or Zero Dispatch) Are Not Uncommon

300
250
200
150
100

Variable Cost of CCGT

50

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figure 4. The "feast or famine" nature of Brazilian electricity spot prices implies very volatile demand for natural gas (at a
stable fuel price).
november/december 2014

ieee power & energy magazine

33



Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - November/December 2014

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IEEE Power & Energy Magazine - November/December 2014 - Cover3
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