Petrobras signs landmark gas supply deal with Gerdau

Brazil's state-controlled Petrobras signed a natural gas supply agreement with steel producer Gerdau in a debut of its more flexible pricing model designed to compete in the newly opened wholesale market.

Petrobras will supply Gerdau's steel milling complex in Ouro Branco, Minas Gerais state. The terms of the four-year contract, which begins on 1 January 2022, were not disclosed.

Gerdau still needs to reach an agreement with Minas Gerais state gas distributor Gasmig, which controls the distribution pipeline that connects Gerdau's steel plant to the gas transport network. Minas Gerais state held a public consultation process last month to develop regulations for third-party access to distribution pipelines. In July, the state lowered the threshold for participation in the wholesale market to 5,000 m3/d from 10,000 m3/d.

Speaking on a webinar in June, Gasmig chief executive Pedro Guimaraes said Petrobras had the potential to exploit its dominant market position by negotiating a wholesale contract with Gerdau, the distributor's second largest industrial client. Guimaraes added that lack of access to transport infrastructure makes it impossible for the company to diversify its sources of wholesale supply. Petrobras did not respond publicly to Guimaraes' remarks.

Gerdau is investing R6bn ($1.15bn) to expand its Minas Gerais operations. At its Ouro Branco mill, it plans to increase output of hot rolled coil by 250,000 t/yr starting in 2024 and of structural beams by 500,000 t/yr in 2025. Gerdau is also investing to reduce its carbon footprint by substituting wood-based charcoal for coking coal.

In July, the company also signed a deal with Shell to build a 190MW solar project that will supply Gerdau's plants with renewable power.