War pushes Brazil's diesel-to-biomethane switch

Sao Paulo, 5 June (Argus) — Rising geopolitical tensions linked to the Middle East war are reinforcing the economic case for biomethane in Brazil's road transport system, particularly as diesel price volatility increases and import dependence exposes the domestic market to external shocks.

Brazil is structurally reliant on imported diesel for its heavy truck fleets. It imported 17.1mn m³ (296,435 b/d) of diesel in 2025, accounting for nearly 25pc of overall sales, according to hydrocarbons regulator ANP's data. That was a 7.3pc increase from the previous import record set in 2022, underscoring a growing exposure to external supply.

Argus data show that the calculated biomethane parity prices for 10ppm (S10) diesel blended with 15pc biodiesel (B15) — assuming a 25pc import share in Paranagua and a 75pc share of state-controlled Petrobras supply under Araucaria prices — fluctuated significantly from January-May, rising to peaks of above R4/m³ ($0.79/m³) during periods of market stress from around R3.10/m³. In contrast, Argus' assessed Brazil biomethane fob plant remained largely stable from R3.065-3.10/m³ over the same period, not including decompression costs.

Because a significant share of Brazil's diesel supply is priced off of import parity, external disruptions are quickly transmitted into domestic wholesale markets, amplifying price volatility. During periods of geopolitical stress — including escalating tensions in the Middle East, disruptions in Mideast Gulf petroleum supplies and attacks on port infrastructure in the UAE — this dynamic has resulted in sharp price swings in Brazilian diesel.

These movements not only widen the gap between diesel parity prices and assessed biomethane values, but also complicate cost planning for large consumers, increasing overall market uncertainty. The resulting price dislocation can improve the relative competitiveness of biomethane, supporting its shift from a marginal alternative to a cost-competitive fuel in heavy-duty transport.

Imported diesel traded at an average premium of R1,325/m³ to Petrobras' wholesale prices in Araucaria on 1 June. Spreads between imported diesel and Petrobras prices rose more than eightfold from 27 February — the eve of the war in the Middle East — to 20 March. These spikes reflect tighter global supply balances and heightened volatility in international markets, reinforcing the vulnerability of Brazil's diesel supply chain.

Biomethane pricing, on the other hand, reflects domestic production conditions and is largely insulated from short-term geopolitical disruptions. Produced locally from agricultural byproducts and landfill waste, it is not exposed to international trade flows. This positions biomethane as a strategic alternative for reducing import reliance while lowering supply and price shock risks.

Biomethane supply growth supports a fuel transition in Brazil, which has 20 plants with a combined capacity of approximately 1.2mn m³/d. In addition, roughly 50 projects — representing a potential capacity of about 2.18mn m³/d — are under development through 2028.

Despite improving economics, structural constraints limit the pace of substituting biomethane for diesel. Brazil's infrastructure for gas-based fuels remains fragmented, and scaling biomethane use in road transport depends on the development of dedicated logistics corridors and reliable supply routes. The lack of coordination across producers, distributors and fleet operators, combined with limited refueling networks, can also restrict broader adoption.

Greater substitution potential will be unlocked as total capacity expands substantially in the coming years, although deployment will depend on the ability to match supply growth with infrastructure development and route-level demand.