Brazilian natural gas on the wholesale market may trade at higher prices under new agreements now being negotiated for supplies starting in the second half of 2022, as companies consider new types of contracts and test new price levels.
These higher prices may be seen particularly among local gas distributors that signed deals with independent producers in the first half of 2021, although those prices will still likely be lower than what state-run Petrobras offers.
Gas producers who participated in and won supply tenders early in 2021 were offering volumes at a discount to what was offered by Petrobras, which at that time priced gas around 11pc of Brent crude. Previously, those smaller producers would sell their production at the wellhead to Petrobras at close to cost, so under the new system they could sell their gas well below Petrobras' prices and still make more than they would have in the past.
Gas bought by Petrobras from other producers averaged R19.6/mmBtu ($3.95/mmBtu) in March, according to oil and gas regulator ANP. Petrobras contracts under the 11pc Brent policy would be priced at $12.26/mmBtu, giving companies competing with Petrobras a large spread for gas sales while still offering discounts to buyers.
The first months of 2022 showed an appetite for gas, with distributors trying to diversify suppliers and industrial consumers willing to migrate away from local distributors to procure gas directly from producers in bilateral contracts.
But now, closer to the second half of 2022, gas producers are eager for more pricing information, so they are reconsidering using fixed prices plus inflation variables and moving to indexed supply contracts that are tied to benchmarks such as the US Henry Hub. Using fixed prices was the option made by at least six distributors and their suppliers in 2021 negotiation for this year's contracts, but it may not carry over into new contracts for supplies starting in the second half of 2022 and 2023.
Last year, onshore gas producer PetroReconcavo opted for fixed pricing as it was focused on guaranteeing that production costs were covered, said João Vitor Moreira, director of regulation and new business at the company. Now he says the company believes "there is potential to increase our margins and still offer a very competitive price for clients."
The shift from fixed prices to indexes is already happening in newer contracts for distributors, as disclosed recently by oil and gas regulator ANP, with more intricate pricing formulas, such as floor and ceiling prices, using international crude and gas benchmarks.
"The pricing level [this year] will not be maintained in 2023," a trader at a gas producer told Argus.
Petrobras, which produces more than 90pc of the gas sold in Brazil, is still going to be the most important price maker in 2023. That means other gas producers will still need to keep their prices at a discount to Petrobras'.
Conversely, lower gas demand for thermal power generation may leave more gas volumes to be sold to consumers in bilateral contracts, increasing competition and impactingprices.
