Natural gas supply agreements in the newly liberalized market signed between Brazilian distribution companies and producers other than state-run Petrobras were able to deflect part of the price increases in January and February.
Among non-Petrobras gas supply agreements, the average price would have increased by 7.2pc from December to mid-February in the region of the country with the most new contracts by Petrobras' competitors, at the TAG pipeline in the northeastern region.In the same period, if only Petrobras gas supply contracts were taken into account, average gas prices would have increased by 48.7pc.
On average, the Brazilian natural gas network price calculated by Argus rose by 35.1pc from December 2021 to 16 Febraury to $14.281/mmBtu, after all the new agreements were released by oil and gas regulator ANP and included in the calculation — but prior to affects of the conflict in Ukraine. Until the start of 2022, only Petrobras had running contracts for gas supply.
The price increase rose by 48.7pc, to $15.491/mmBtu, when analyzing the gas supply agreements at the TBG pipeline that brings Bolivian gas to Mato Grosso do Sul, Paraná and Santa Catarina states, with interconnection at Sao Paulo, where there are no contracts for gas supply signed with companies other than Petrobras at this momentnt.
But for the TAG pipeline network from Rio de Janeiro to Ceará state, in the northeastern coastal states, the average price increase was smaller — by 20.3pc to $12.842/mmBtu. The TAG network natural gas average price has more influence from non-Petrobras gas supplies, with distributors at Alagoas, Bahia, Paraíba, Pernambuco and Rio Grande do Norte states having agreements with gas producers such as Petrorecôncavo, Shell, Galp and Origem Energia. But the TAG average network gas price also includes Petrobras contracts signed by the distribution companies, or Petrobras contracts that were signed in previous years but are still valid.
When segregating Petrobras contracts, it is possible to isolate the effect of Petrobras' new pricing policy announced in the last quarter of 2021, when the state-run company said that it would need to procure LNG to meet the natural gas demand from new contracts.
When only Petrobras agreements are considered, the gas network's average price would have risen by 42.5pc from December to February. Petrobras prices rose in the fourth quarter of 2021 when it began relying on pricier LNG to meet demand.
On the other hand, if all Petrobras contracts were removed from the price calculations, the average increase in gas prices in Brazil, all pipelines considered, would be smaller, at 18.6pc.
For the TAG network, when removing all Petrobras contracts from the price calculation, the prices would have a much smaller increase, of 7.2pc.
Market participants also are worried about the Brent crude indexation used by Petrobras in gas supply agreements, as it exposes consumers to rising oil prices. Since the oil prices are heavily influenced by international events and are raising steeply during the last week in response to the conflict in Ukraine, Brazilian distribution companies worry contracts with Brent indexation may suffer heavy price increases.
Other gas suppliers in Brazil have introduced more sophisticated indexation formulas, such as mixing the US Henry Hub futures price with Brent, as is the case of Equinor's contract with Bahia state distribution company Bahiagas. As another example, Origem Energia's gas contract with Alagoas distribution company Algás establishes a floor and a ceiling price for contracts.
