The recent expansion of natural‑gas‑fired thermal plants in Brazil, reinforced by the Capacity Reserve Auction (LRCAP) held on March 20, highlights a new structural challenge for the energy sector: the lack of flexibility in the gas market. Although the country is increasing its gas supply, the absence of storage infrastructure and balancing mechanisms may raise costs, increase volatility, and compromise supply security, potentially costing up to US$ 12.4 per MMBtu.

According to an analysis by Mirow & Co., a strategy consulting firm with a global mindset, Brazil is moving toward a scenario in which there will be sufficient gas in volumetric terms, but without adequate responsiveness to demand fluctuations—especially with the growth of thermal generation and the greater participation of renewable sources. “The country no longer faces a gas shortage issue, but rather a flexibility issue. Without storage and short‑term mechanisms, the system cannot efficiently absorb supply and demand shocks,” says Raoni Morais, a Mirow specialist.

The topic has gained relevance after the LRCAP contracted around 19 GW of capacity, mostly from natural‑gas‑fired thermal plants, reinforcing the role of the fuel in the security of the electrical system. However, these plants require immediate and predictable gas availability, something that depends directly on infrastructure that is still incipient in the country.

Today, Brazil is the only major natural gas‑consuming market without significant underground storage capacity in operation. In mature markets such as the United States and Europe, this infrastructure is a central component of the sector, helping reduce volatility, optimize prices, and ensure energy security. In the absence of such mechanisms, the cost of flexibility is already high. Mirow estimates that the spread associated with balancing in the Brazilian system is between US$ 10.5 and US$ 12.4 per MMBtu, a proxy for the cost of operating in an inflexible market.

In addition, the profile of gas supply in the country is changing. Production growth is being driven by associated gas from oil production, especially in the pre‑salt, which has a lower ability to adjust to demand. At the same time, historically more flexible sources are losing relevance, such as gas imported from Bolivia, which is in commercial decline. “Brazil is entering a phase in which more gas is available, but without the necessary infrastructure to convert it into competitive prices and predictability. This mismatch tends to become more evident with increased thermal dispatch,” says Raoni.

Liquefied natural gas (LNG), although relevant, does not fully solve the problem. In Brazil, its use is mainly destined for supplying thermal power plants, without playing the systemic balancing role that storage provides in other markets.

According to Mirow specialists, the sector’s advancement depends on creating conditions for the development of gas storage and balancing mechanisms, as well as evolving toward a physical hub that allows greater liquidity and integration among market agents. “The increase in supply is significant, but not sufficient. The sustainable competitiveness of the gas market depends on the ability to balance the system over time, and this requires infrastructure and instruments Brazil does not yet have,” concludes the firm.

The consulting firm’s study assesses that the window between 2028 and 2029 may represent an opportunity to structure this market, with increased pre‑salt production and greater availability of infrastructure, creating conditions for arbitrage and the development of flexibility solutions.

About Mirow & Co. – Mirow & Co. (mirow.com.br) is a strategy consulting firm with a global mindset that delivers functional knowledge across different industries in an agile and flexible manner. Its work supports strategic decisions that have guided companies in the energy, automotive, agribusiness, infrastructure, and pulp and paper sectors, among others, into the new economy, generating value for their businesses and sustainably impacting the market. Led by Andreas Mirow, Elmar Gans, and Felipe Diniz, the firm has associated consultants in offices in São Paulo and Rio de Janeiro and a wide network of global partners in different countries. Mirow’s operating model combines strong innovation capabilities with implementation, providing clients with the best experience due to its unique way of working. For its performance, the firm has received the Great Place To Work seal and B System certification in Brazil, a recognition of the social, environmental, and economic impact of its activities.