Brazil LNG prices soar well ahead of winter peak

Late June LNG prices in Brazil soared by 139pc from early March levels, with more increases likely in the coming months, well ahead of the winter heating season in the northern hemisphere.

The price for LNG Brazil delivered ARV rose from a year-to-date low of $5.14/mmBtu on 3 March to as high as $12.30/mmBtu on 30 June. The monthly price average for Brazil LNG in June was 81pc higher than the average for March. Similar price increases have occurred for Asian and European LNG, with LNG des Northeast Asia (ANEA) up by 87pc and LNG NW Europe delivered up by 75pc during the same time period.

But the soaring prices likely will not discourage Brazil's LNG imports. The country faces a severe water crisis that imposes restrictions on hydropower generation, which makes up 65pc of the country's power matrix. It also lacks crucial pipeline infrastructure to transport onshore natural gas production from pre-salt fields to power plants. Amid this scenario the government has eased LNG purchases for power generation.

The country authorized Petrobras in early June to increase its LNG imports by 50pc, to 30mn m³/d (1.06 Bcf/d), to compensate for an expected drop in domestic natural gas flows when the Rota 1 pipeline shuts down for maintenance in August.

LNG-fired power plants are expected to be dispatched throughout the Brazilian dry season, which lasts until October. The Electric System Operator (ONS) expects to have three LNG plants running by the end of August, with 2,220MW installed capacity.

This growth in the Brazilian LNG market comes alongside more investments in regasification facilities and mergers and acquisitions in the sector, such as OnCorp's LNG terminal project at Suape as well as New Fortress Energy's (NFE) acquisition of Golar Power's assets in Brazil and its investment in a gas-fired power plant. NFE is also installing a regasification terminal in the southern state of Santa Catarina.

Brazil's LNG imports are also ramping up along with the investments. The country regasified an average of 17mn m³/d of LNG in the January-April period this year, compared with an average of 8.28mn m³/d in 2019 and 8.38mn m³/d in 2020, according to Ministry of Mines and Energy data. Governmental measures to incentive LNG power generation began after that time period this year.

The LNG price increase in Brazil is driven by multiple global factors, according to an LNG trader in Brazil. These include increased demand in Europe and Asia as a result of weather conditions, increased economic activity in those continents as Covid-19 restrictions loosen, pressure to trim coal-fired generation in Asia and, finally, a crude oil price increase for long term contracts.

LNG delivered in Asian countries had the biggest price increase this year. LNG des Northeast Asia (ANEA) rose from an average of $6.44/mmBtu in March to $12.02/mmBtu in June, with more deliveries to the northern hemisphere resulting from a hotter-than-expected summer.

The rising global LNG demand that is directly affecting Brazil's market is not expected to end soon. Demand for gas is increasing in China and South Korea amid governmental actions to reduce coal-fired generation. South Korea had to stop nuclear power generation at a 1,400MW facility as a result of a fire in May, which should increase its LNG imports in the coming months, the trader said. European gas inventories are also below average for this point of the year, boosting that continent's demand for LNG imports.

By Flávia Pierry

LNG prices – Brazil, Europe, Asia $/mnBtu