Brazil works to create standard gas agreements

A standard natural gas supply agreement could improve liquidity in Brazil's market, as it would facilitate deals for small spot volumes.

The recently liberalized Brazilian gas market has yet to pave a clear path for trading inside the pipeline network. The sector — which had grown accustomed to medium- and long-term supply agreements with state-run Petrobras and regional distribution companies — is now struggling to sign its first contracts in the bilateral market and create possibilities for small traders.

Brazilian industry associations are discussing two contract standards: the general agreement for natural gas created by the European Federation of Energy Traders (EFET) and the North American energy standards board (NAESB) base contract for sale and purchase of natural gas.

These models' current versions date back to 2006-2007 and have been revised several times. The European contract is 51 pages long, with 23 chapters and eight annexes. The US contract is 13 pages long and has 15 different sections.

Brazilian oil and gas institute IBP, which represents producers, told Argus that the creation of a standard gas supply agreement is under discussion and that the industry is discovering trading bottlenecks along the process. The debate on a draft contract still needs fine-tuning, especially in areas such as legal, taxing, trading and operations.

IBP said the European standard is "a very important reference", because the Brazilian model for the gas market — with its entry and exit capacity agreements — was inspired by the European model.

"To build a more liquid market, we need to move forward with the development and adoption of standardized contracts to facilitate and streamline negotiations between traders, buyers and sellers," IBP said.

Some companies willing to trade spot gas into the pipeline have not yet made deals of this kind because they feel insecure without a standard contract, sources told Argus. A standard contract could help balance risks and penalties among counterparties because it would have been broadly and previously discussed.

Smaller deals could help develop the entire gas market, said Anabal Santos, executive secretary for independent oil and gas producers' association Abpip. A standard contract with default basic information could facilitate trade in gas delivery points — or "hubs"— something yet to exist.

The lack of a standard contract is hindering liquidity in the spot market, which could be picking up pace with gas demand for balancing pipelines, said Adrianno Lorenzon, gas director at Brazil's energy-intensive industries' association Abrace. This can create trading possibilities for smaller gas producers, traders and for gas consumers with spare volumes.

Financing options and penalties are some of the main points that need to be standardized, said Lorenzon. The agreement would also be created for products with different lengths, such as intraday, day-ahead and week-ahead terms.

Abrace and Abpip are working with their respective associates to reach a contract basis that fulfills both gas consumers' and producers' needs and limitations.

Another important step to help Brazil reach more liquidity would be regulator ANP updating its oil and gas resolution for gas trading. It estimates a new resolution will be published next October.

By Flávia Pierry