Brazil gas prices up on Bolivian import cut

A 6mn m³/d cut in natural gas supply from Bolivia to Brazil's state-controlled Petrobras that will lead to higher prices in Brazil highlights the need for infrastructure investments.

The 30pc supply cut from state-run YPFB led to Petrobras warning the shortfall would require more LNG imports to fill the gap. The volume is small compared to the total size of Brazil's gas market, but not insignificant. Bolivia shipped 20mn m³/d last year, filling 22pc of Brazil's total demand. The supply cut amounts to 6.4pc of demand, which would require an extra LNG tanker every 13-17 days to fill the gap.

So far this year Brazil's gas demand has lagged that in 2021, when most of its thermal power generation plants were running amid a drought that sapped hydroelectric capacity.

In a few months, the Route 3 outflow pipeline should begin bringing in 10.5mn m³/d of gas from offshore pre-salt production areas, with volumes doubling next year. YPFB said it tried to negotiate with Petrobras to avoid the reduction of shipments, calling the price in the contract signed in 1996 — and amended eight times — "low". "The timing and current price circumstance allow us to maximize prices," YPFB president Armin Dorgathen said.

Dorgarthen noted that the reduction in shipments in the Petrobras contract did not happen "from one day to the next", because YPFB was negotiating to increase prices in a new contract extension amendment requested by Petrobras.

Amid the negotiations, Argentinian company Ieasa requested more gas to meet demand during the upcoming winter months. Bolivia agreed to supply 14mm m³/d to Argentina in a price range of $7-9/mmBtu, plus penalties for Bolivian take-or-pay agreements with Brazil that it would have to breach partially. "It was an economic decision rather than a political one to maximize resources," Dorgathen said.

Brazil's unwillingness to raise prices in the Bolivian contract resulted in having to purchase LNG at $22/mmBtu, which will translate into price increases for Brazilian gas consumers with Petrobras supply agreements.

The saga has reinforced the perception of Petrobras' persistent dominant market position and has raised discussion of long-term investment needs in Brazil, but also across Latin America. Higher marginal gas costs and depending more on LNG cargoes can speed up transportation and pipeline investments.

The scenario of Argentina and Brazil fighting for the same Bolivian gas was foreseen and could be avoided, said Alvaro Rios, director at consulting firm Gas Energy Latin America. It exposes the lack of investment and planning that led Brazilian gas producers to maintain high reinjection rates — when gas is pumped back into wells to repressure them or because of a lack of takeaway capacity. Similarly, YPFB has chosen not to explore and produce gas at new reservoirs, and Argentina has not expanded pipeline capacity and reach, Rios said.

New gas producers will step up to supply part of the lost Bolivian volumes, said Anabal Santos, executive-secretary of the Brazilian association of independent oil and gas producers, Abpip. Santos also sees an opportunity for new investments to come for the Brazilian market.

By Flávia Pierry