Brazil gas prices fail to match global declines

Declining Brazilian natural gas prices are failing to drop at the same pace as international gas prices, unsettling domestic consumers.

Brazil's average natural gas price in the first quarter decreased by 7pc from the previous quarter, according to wholesale contracts among producers and distributors. But the drop in prices for LNG delivered to Brazil, US Henry Hub and European TTF fell much more steeply, varying from 32.9-52.1pc reductions.

The average price of Brazilian natural gas sold to distributors year-to-date from the fourth quarter of 2022 is also down 7pc, while the price of LNG delivered to Brazil fell by 61.1pc. US Henry Hub prices are down by 63.7pc, while European TTF gas prices dropped by 65.4pc.

Imported LNG prices are also below those of gas produced domestically, as they fell below Brazilian gas values starting on 6 April, before adding transportation and distribution costs. LNG delivered to Brazil is $7.39/mnBtu on 24 May, while domestic natural gas averages $11/mnBtu — including just transportation costs and not distribution service fees, according to Argus prices.

A key reason for the slower movement in Brazilian natural gas prices is thatdistributors still choose to carry mid- to long-term contracts with gas producers under Brent crude indexes, as Brazil still does not have a competitive liberalized gas market. But for Brazilian industries that compete internationally, dropping global gas prices make it harder to compete with imported goods.

Such is the case of urea imported to Brazil, which was priced at an average $574.80/metric tonne (t) in the fourth quarter of 2022 and is currently at $317/t, a 45pc decrease. A source told Argus that final gas prices in Brazil would need to reach urea producers at a maximum $7/mnBtu, all costs included, to make urea production in Brazil competitive with international prices.

Industrial gas consumers also advocate for $7-8/mnBtu final gas prices, which could unlock demand, according to the large industrial energy consumers association Abrace.

Natural gas consumers in Brazil are asking the federal government for more gas supply and lower prices. The government announced the Gas for Jobs program and the mines and energy ministry's oil and gas secretary already said the ministry will direct gas owned by state gas and oil marketing company PPSA to gas consumers at the $7-8/mnBtuprice, but before distribution costs.

Gas consumers arebeseeching the government to take action to reduce gas prices, asking state-controlled Petrobras to mimic a decision to reduce LPG and gasoline prices for consumers and cut natural gas prices.

Last week, the gas forum — a group of associations of gas producers, consumers and pipeline operators — sent a letter to the minister of mines and energy Alexandre Silveira asking for natural gas to be included in Petrobras' price-reduction policy. The group argues that Petrobras' gas price to distributors is the highest among competitors. The average gas price for Petrobras supply ranges from R2.01/m³ ($0.40/m³) to R2.16/m³, while the average price from other oil and gas producers is R1.72/m³, the group said.

Gas distributors also reacted to Petrobras' LPG and gasoline price cuts. Gas distributors' association Abegas sent a letter to Petrobras' chief executive Jean Paul Prates asking for price reductions for natural gas, as it competes directly with LPG, and gasoline competes with vehicular natural gas.

By Flávia Pierry