State-controlled Petrobras secured six new contracts with three state natural gas distributors, significantly expanding its position in Brazil's market in the coming years.
The company signed 10-year deals with Parana state's Compagas, Rio Grande do Sul state's Sulgas and Sao Paulo state's Necta — formerly known as Gas Brasiliano.
All contracts are tied to the Bolivia-Brazil gas pipeline. Petrobras will deliver a combined 1.6Bn m³/d by 2030 through these deals, despite forecasts that Bolivia will divert all of its gas reserves for domestic use by 2029, according to consultancy Gas Energy's director Alvaro Rios.
Sulgas' R5bn ($988mn) contract is the most expensive of the lot. Petrobras will deliver 570mn m³/d of gas to the distributor starting in 2024, decreasing supplies to 315mn m³/d by 2033-2034. The Rio Grande do Sul company's contract is not tied to the US Henry Hub index, unlike recent 10-year contracts signed by Petrobras with other companies. Instead, prices are calculated at 11.9pc of future Brent crude.A second deal between the two companies has 11.7pc of Brent, with Petrobras supplying 105mn m³/d from 2026-2034.
The Henry Hub index is factored into one of the two Compagas' contracts, which total nearly R4bn. On the larger contract gas will be priced solely on a percentage of Brent starting in 2024 — when Petrobras will deliver 339mn m³/d — to 2025, when supply increases to 409mn m³/d. But it will also take the Henry Hub into account from 2026-2034, when volumes are set back to 339mn m³/d. In this second leg of the contract, the Henry Hub index is responsible for 36pc of the pricing calculation, while the Brent index is factored into the remaining share. A second contract with Compagas extends the partnership to R5.6bn.
Necta's contracts with Petrobras are the first since its rebranding earlier this year. These new transactions have the Henry Hub index incorporated at a rate of 20-80pc alongside Brent. One of the company's contracts is 20pc indexed to the Henry Hub for the next eight years. Petrobras will begin supplying 445mn m³/d to Nectar in 2024-2025, gradually decreasing to 222mn m³/d in 2031-2034.
These developments come as Brazil's gas market boasts more than 14 suppliers and further strengthen Petrobras' position in the near future. It has expanded benchmarks in its gas contracts since May, when it changed its contracting policy, increasing lengths and reintroducing the Henry Hub index alongside Brent-tied contracts. Gas-gas indexing has also been applied to longer-term contracts.
Petrobras' dominance means other market participants have to watch closely everything the company does. But there are other supply options in the horizon, such as Vaca Muerta gas from Argentina, which could serve as a future source for the Bolivia-Brazil pipeline.
Petrobras is optimistic about Bolivia's hidden exploration chances, its head of energy transition and sustainability Mauricio Tolmasquim said earlier this year, despite the market consensus Bolivia's natural gas reserves are nearly tapped.
But Brazil's energy future is not dependant on Bolivia's supply. Its energy security will get a boost from three other sources: the 18mn m³/d 355km (220.6-mi) Rota 3 gas pipeline in the offshore Santos basin — expected to operate in the first half of 2024; the deepwater project in the Sergipe-Alagoas basin; and the Norway-based Equinor-operated Raia block in the Campos basin which will have 16mn m³/d of capacity: 15pc of Brazil's demand, Equinor Brazil's chief executive Veronica Coelho said.
