As Brazil prepares to open its natural gas market in January, Petrobras is upsetting buyers by proposing contracts linked to costly LNG as the state-controlled company retains its limited domestic production for its own operations and previously committed customers.
Petrobras informed the market this week that LNG is "indispensable" for meeting the Brazilian market's gas demand in 2022. Since Petrobras is committed to reducing gas imports from neighboring Bolivia by about 10mn m³/d, about half of its volumes in previous years, it will use its own gas production to fill previously signed contracts.
Petrobras's fertilizer units and thermal powerplants are among the priority end-users cited by Petrobras, along with a small share of local gas distribution companies with previous contracts.
For 6-12 month-contracts, Petrobras' proposed gas price is $36/mmBtu, close to the monthly LNG index for Asian deliveries, as the Argus ANEA des monthly index is at $31.817/mmBtu. For longer periods, such as 2-4 year contracts, Petrobras' proposal comes with a discount, at around $22/mmBtu, the company told clients.
About 80pc of domestic gas distributors are short on gas for January, amounting to around 30mn m³/d of supply that is uncovered and would need to take Petrobras' offer. The Brazilian Association for piped gas distributors (Abegás) estimates these prices imply rate increases of as much as 200pc for final captive gas consumers.
Abegás bristled at the state-run company's move and plans to take its complaint to the competition defense watchdog CADE and to oil and gas regulator ANP to try to reach a midterm solution.
Petrobras reserving its gas production for thermal powerplants — a variable source of demand that will probably decline in the next few months as the rainy season hits Brazil's west central states — will reduce supply for fixed demand at distribution companies and industries, Abegás strategy and market director Marcelo Mendonça said. Moreover, more gas will come onshore when theoutflow pipeline Rota 3 from offshore fields enters operation in mid 2023.
"We are conducting negotiations with Petrobras to try to reach a temporary solution," Mendonca said. "Their proposal will harm the natural gas market transition and its planned improvements."
Gas consumers also said Petrobras cannot suddenly remove itself from the role of being the country's main gas producer, accounting for 75pc of Brazil's natural gas production of 133mn m³/d in September, with the rest produced by other companies such as Shell, Eneva, and Total.
Even if distributors were willing to turn to LNG imports, not all the country's terminals would be able to meet their needs. Brazil has five operating LNG terminals. Two of them are owned by Petrobras: Pecem in Ceará state and Baia de Guanabara in Rio de Janeiro.
Two others are privately owned: CELSE's Porto de Sergipe terminal in Sergipe state and Porto de Açu terminal in Rio de Janeiro, which is owned by GNA. Neither are connected to the pipeline grid — the regasified LNG is consumed on site by power plants and industry — limiting the terminals' ability to supply distributors
The Baía de Todos os Santos terminal, in Bahia, which is leased for two years by Excelerate, also fails to solve the distributors' and consumers' problems. The relatively short duration of the lease creates uncertainty for gas consumers seeking to import loads. Excelerate's strategy targets spot gas supply, and its prices reflect that it serves as a last resort for gas and pipeline services.
Petrobras is exiting the gas market too rapidly for this early stage in the market's transition, and gas distributors are paying the price, Mendonça said.
"We were invited to a dinner party and now we are footing the bill," he said
