Brazil to delay Petrobras ban on gas purchases

Brazil is postponing a ban on state-controlled Petrobras' purchases of natural gas from other producers, a move that will essentially delay the opening of the country's natural gas markets.

The postponement by competition watchdog CADE was likely made at the request of gas distributors and other consumers, sources told Argus.

The decision has not yet been made public but CADE confirmed to Argus that it "is analyzing compliance with the commitments and its implications and will intervene when necessary."

The commitment signed by Petrobras with CADE in July 2019 to incentivize the natural gas market opening, shifting from a monopoly to a competitive model, said that oil and gas producers could no longer sell their gas volumes directly to Petrobras at the wellhead beginning 1 January 2022. They would instead need to sell those volumes directly to consumers.

CADE's decision has been relayed to Petrobras and oil and gas producers. The decision is likely to haveinfluenced the decision of Shell and Compass to decline to move forward in negotiating gas supply for local gas distribution companies Cegás in Ceará state, ESGás of Espírito Santo state, and SERGAS of Sergipe state, as announced yesterday.

With the option of continuing to sell their gas at the wellhead, with no need to access transportation and processing facilities, oil companies face lower risks. According to oil and gas regulatory agency ANP, in September 9.9mn m³/d of gas was sold directly among the producers. The price for this gas varies from R10.8/mmBtu ($1.92/mmBtu) to R28.1/mmBtu.

Petrobras will also be able to keep on purchasing LNG processed at third-party terminals. This is the case of the Bahia terminal, leased to Excellerate. This will allow Petrobras to use gas swap options to supply distribution companies in the northeastern states. Pipeline limitations made it impossible for companies to buy LNG for the Bahia terminal.

With the postponing of the CADE/Petrobras commitment, the state-run company said today it will be able to sign gas supply contracts still indexed to Brent, keeping the current contract standard. According to a source aware of the Petrobras contract negotiations, for shorter-term contracts the company will index its gas to LNG prices for Asia. For four-year contracts, Petrobras is offering a price close to 16pc of the Brent daily price for the first year of supply, which would be around $12/mmBtu today, excluding transportation costs. The price would have a discount for the second year, to around 14pc of Brent, and lowered to 11.6pc of the Brent price from the third year of the contract, similar to the prices for gas contracts used in the 2020/2021 period.

Petrobras did not respond to Argus requests for comment.

By Flávia Pierry