Brazil PPSA plans 1.8mn m³/d gas auction for 2027

: Natural gas
26/10/22

Brazil's state-owned commodity trading firm PPSA plans to offer 1.8mn m³/d of natural gas to industrial consumers in a new auction around mid-2027, more than 50pc above the volume sold in the first auction held on 22 October.

The announcement follows demand that exceeded the volumes offered across all five industrial segments in22 October's first auction, in which 1.1mn m³/d gas was sold.

Total demand was 39pc above supply, national oil, gas and biofuels secretary Renato Dutra said after the auction. Demand in some segments reached nearly three times the volumes available, according to PPSA president Luis Fernando Paroli.

The government plans to announce the next auction further in advance to give industrial consumers more time to prepare and could adjust the rules to broaden participation, Paroli said. The first auction took place as some companies were finalizing their existing gas supply contracts, which limited their ability to participate, he added.

The government expects to advance the rules for the next auction after concluding the current process, Dutra said.

A group of 23 companies among 36 industries authorized to participate in the auction bought all 1.1mn m³/d offered in the first auction, eliminating the need for a second bidding round. The contracts will generate R376mn ($74mn) for the government over their 10-month term, PPSA estimates.

The average gas price resulting from the auction was $5.83/mmBtu, based on the average September benchmark Henry Hub gas price, according to Paroli. The auction pricing formula consists of 115pc of Henry Hub plus the B coefficient offered by each bidder and monthly pricing will use the previous month's average.

The average winning B coefficient was $0.64/mmBtu above the $1.80/mmBtu minimum set for the auction.

Mines and energy ministry MME estimates the resulting gas prices represent reductions of 38pc for glassmakers, 56pc for ceramics producers, 46pc for steel, metals and mining companies, 56pc for chemical and petrochemical producers and 57pc for fertilizer producers compared with prices currently paid by those industries. The comparisons were based on the average prices currently paid by each sector for contracted gas volumes.

Dutra said some industrial users currently pay around $12/mmBtu for natural gas.

The auction price includes infrastructure costs such as outflow pipeline access and processing plants, known locally as SIE and SIP, Dutra and Paroli said. Those prices cover only the gas molecule component (PM) and exclude any transport costs stemming from the pipeline network. The winning companies will be responsible for arranging transportation and may choose to hire trading companies to handle the process.

The government has been discussing how to establish adequate remuneration for that infrastructure as part of its Gas for Jobs program, while hydrocarbons regulator ANP is also considering the issue.

Some successful bidders are not registered gas shippers and will rely on gas trading firms to arrange transportation from the Itaborai delivery point to their facilities. Paroli said all such buyers had already identified a trading firm and had preliminary arrangements in place to qualify to compete in the tender. They must submit their contracts with those companies by 27 November.

PPSA will monitor whether the gas reaches winning industrial consumers, and that consumption must match their current gas demand. Buyers or the trading companies they hired will be subject to penalties if consumption mismatches the requirements.

PPSA said players can swap volumes with auction participants in extraordinary situations such as maintenance periods and other emergencies. But winning companies must swap volumes under the auction's own framework, without profiting from it.

Officials also argued that the program should continue regardless of the outcome of Brazil's 2026 presidential election, which will head to a second round of voting on 25 October.

Dutra described the gas agenda as a "state policy" rather than a government program and said its backing by energy policy council CNPE reinforces its long-term nature.

Paroli said state participation in strategic sectors including oil, gas and power gives the government tools to support industrial competitiveness. He expects lower gas costs to improve Brazilian industrial competitiveness, potentially supporting domestic production and exports.

By Marcos Mortari, Maria Frazatto and Rebecca Gompertz

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26/10/22

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Algeria cuts gas pipeline flows to Spain

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