Earlier this month, Brazil’s lower house approved a new regulatory framework for the natural gas sector, paving the way for an opening similar to the one seen in Mexico’s gas market over the past six years.

The bill includes restrictions on market participants operating in different segments of the natural gas market, which would effectively break up the monopoly state oil firm Petroleo Brasileiro SA (Petrobras) has in the gas market. The bill also guarantees open access on pipelines, a new market-based tariff scheme and a policy on storage. 

The bill still has to make it through the senate and be ratified by Brazilian President Jair Bolsonaro.

On the heels of this movement, discussions over a new pipeline that would transport natural gas from Argentina’s Vaca Muerta formation to southern Brazil have restarted.

Earlier this year, the chairman of Argentine state oil firm YPF SA Guillermo Nielsen told the audience at the World Economic Forum in Davos that a pipeline to Brazil might be a key to unlocking the potential of Vaca Muerta.

This week, Argentina’s ambassador to Brazil, Daniel Scioli, said he had discussed with Bolsonaro and Mines and Energy Minister Bento Albuquerque a 900-mile pipeline from western Argentina to the southern Brazilian city of Porto Alegre.

“This is our big bi-national project,” Scioli told Brazilian financial daily Valor Economico, adding that Brazil needs natural gas and Argentina needs new markets.

He said the project would take three years and that a meeting between Argentina’s new energy minister Darío Martínez and Albuquerque was scheduled on the topic for later this month. 

Currently, Brazil imports gas via liquefied natural gas (LNG) import terminals and through a long-term pipeline contract with Bolivia. Argentina in 2018 began exporting gas to Chile through existing pipelines after a 10-year hiatus, but it too must import LNG and from Bolivia in the winter to meet increased demand.

The news comes as Argentina tries to revitalize the Vaca Muerta shale play, which has seen a significant downturn since the new administration of Alberto Fernández came to power late last year, made worse by the economic impacts of the coronavirus.

Natural gas production in Argentina fell by 12.2% year/year in July to 126.8 million cubic meters/day (MMm3/d), or 4.47 Bcf/d, according to the latest report by the IAE Argentine Energy Institute.

Production was essentially flat compared to June. In April, Argentina had zero rigs running, but upstream activity has picked up slowly since then.

Production from Vaca Muerta in July fell year/year to 1.14 Bcf/d from 1.23 Bcf/d. Vaca Muerta has been billed as the most promising unconventional play outside of the United States, and most major energy firms hold acreage in the formation.Argentina also is finalizing a gas tender program aimed at kickstarting production. The proposed tender system would consist of a four-year block auction mechanism starting in October, which would differentiate offers for the peak winter season and the rest of the year, according to IAE. Prices for offers from gas companies would be set at around $3.40/MMBtu.