Petrobras gas purchase ban delayed amid price concerns

Brazilian competition watchdog CADE has authorized state-run oil company Petrobras to temporarily continue purchasing natural gas for third-parties, despite the pending opening of the gas market on 1 January.

CADE approved the deal for Petrobras to buy LNG directly from Excelerate Energy on behalf of fertilizer producer Proquigel on an emergency basis for a limited amount of gas. The special approval process lets the deal continue despite Petrobras' 2019 pledge to CADE to reduce its dominant position in the natural gas market — which includes a ban on gas purchases by Petrobras by 1 January 2022.

The volumes that Petrobras will be authorized to buy directly from Excelerate were not disclosed.

CADE's counselor Paula Farani de Azevedo Silveira justified granting the request because of concerns gas prices would rises significantly as companies like Proquigel tried to secure gas through other means.

Proquigel's request for Petrobras to secure the natural gas cited difficulty in accessing the bilateral gas market, including striking deals with pipeline operators and regasification terminals. The company also said with Excelerates' lease of the Bahia LNG terminal ending in 2023, the company could not offer natural gas at below-spot prices.

"Although Excelerate holds the right to exploit the Bahia regasification terminal, under current conditions, Excelerate is not able to position itself as a competitive LNG supplier in the market", said Proquigel in the request.

In the decision, CADE says that there is an imbalance in Petrobras' supply and demand capacity because of the shift to the open gas market. This imbalance could be skirted by other gas suppliers in the spot market, but that would lead to natural gas price increases for consumers. Petrobras is more able to "absorb" high costs due to its "still large position in the sector," according to CADE.

Although the decision is limited and temporary, it will still have negative impacts on natural gas competition, CADE acknowledges, but delaying Petrobras' gas purchase ban — as this agreement effectively does — does not mean Petrobras is out of compliance with its CADE agreement.

"This type of action could delay the opening of the gas market brought about by the agreement, as it continues to privilege Petrobras' role in the supply of natural gas, instead of boosting the spreadingand performance of new competitors and new entrants", according to the CADE decision.

Proquigel requested the volumes to allow it to continue fertilizer production after 1 January 2022 "by means of competitive prices given the integration of such volume into the Petrobras portfolio, regardless of any authorization that has or will be granted in favor of the local gas distributors".

Other requests to postpone Petrobras' ban to purchase gas was directed to CADE by the local gas distributors.

By Flávia Pierry