A new round of natural gas distribution supply contracts is bringing both innovation and new challenges to the Brazilian market, with lower prices than those signed last year.
Out of the six new contracts published by oil and gas regulator ANP, only one ends before 2033 and state-controlled Petrobras will be the supplier in four of them. That was expected as the firm is expanding its market share under the new administration, but it could also be detrimental to the development of a free gas market, since 10-year long contracts lower liquidity and competition.
The contracts' pricing ranges from 11.7-13.5pc of the Brent crude index, with most contracts on the lower end of the range. Comgas' contract — this season's largest, with 9.5mn m³/d of firm intake — was priced on the lower threshold. Petrobras introduced a US Henry Hub gas index price component to its contracts with Sao Paulo state's Comgas and Pernambuco state's Copergas starting in 2026.
Despite adding the index to its pricing formula with Comgas, the contract sets Henry Hub's influence on its price to zero. In Copergas' case, the Henry Hub will make up 20pc of the price in 2026-2034 and its pricing input adds the US inflation rate PPI variable. A market participant told Argus now would not be a good time for linking contracts to US inflation, given the current higher rates. Others believe that the advantages of opting for Henry Hub indexing will depend on each company and on how much it will be worth at the start of its influence on the cost.
Petrobras introduced a new way of calculating transportation costs in its four contracts with SCGas, Copergas and Comgas, which sets the entry fee into the pipelines at R0.3045/m³ ($0.063/m³), to be adjusted by inflation yearly. The rate is higher than average entry tariffs charged by pipeline company TAG — which owns the most extensive system in the country in the coastal northeastern states — with entry tariffs within its current contracts with market participants ranging from R0.2174-R0.3363/m³.
Petrobras also set a clause to charge an exit fee from pipelines, which is usually the consumer's responsibility, directly within its Comgas and Copergas contracts. Adrianno Lorenzon, gas director at the large energy consumers' association (Abrace), praised the initiative, saying it gives consumers more options. But it would be important to evaluate how Petrobras defined its entry into the pipeline fee, he added.
Charging the exit fee directly within Petrobras' supply contracts may also make distribution companies less proactive in seeking competitive offers from other suppliers. Currently, natural gas suppliers retain 37pc of the volume in contracts to exit the TAG pipeline. The new tariff model for pipeline capacity was set so suppliers and consumers could more easily buy the entry and exit legs, respectively, which is not how most operate currently.
When distributors lose clients to the free market, all of Petrobras' new contracts allow them to lower volumes outlined in the contract if they opt to lower their volumes with other suppliers at the same proportion. Also, the reduction cannot surpass two-thirds of the total contracted volume.
