Brazil gas producers in search of consumers

Brazilian oil and gas producer PetroReconcavo is aiming to attract gas consumers to the liberalized market by offering more flexibility in contracts.

PetroReconcavo, one of the nine gas suppliers to compete in the new Brazilian gas market, seeks to start signing small volume agreements this year as the company works out issues such as transportation and pipeline rules and costs for gas balancing.

PetroReconcavo signed two- to five-year contracts with local distributors in northeastern states last year with the start of operations in 2022. But the company wants to add industrial customers to its client mix, focusing at first on consumers close to the TAG pipeline in the northeastern region in states that have already approved state gas laws, director of regulation and new business Joao Vitor Moreira said.

Companies such as petrochemical producer Braskem and fertilizer producer Unigel are procuring gas directly from producers, he said. Other consumers also are eyeing ways to migrate away from distributors, even if only for part of their total demand.

"We want to understand this movement," Moreira said. "Both gas producers and consumers perceive the risks, but also the benefits of the migration, and all of us have appetite to assume the risks."

Sharing risks

The company's strategy to attract more consumers is to share with consumers the risks of the unresolved issues that are part of Brazil's newly created gas market, including potential penalties for take-or-pay contracts and for not complying with pipeline transportation rules.

On the other hand, consumers may not receive significant discounts if they remain in the regulated market of their local distributor. PetroReconcavo's prices for the free market will be "competitive" to stimulate a migration away from the distributor, but probably will not offer huge discounts.

"PetroReconcavo started with a fixed pricing last year, at which we would guarantee our costs," he said. "Today we are not stuck to that anymore and we consider there is potential to increase our margins and still offer a very competitive price for clients."

PetroReconcavo sees the Brent crude index as the most reliable, but it has started studying other indexes as it weighs whether LNG prices can make sense for Brazilian gas markets. Power generation needs may influence LNG imports and make the market turn to LNG imports, as seen in 2021.

As for pending matters to help the market gain more liquidity, Moreira said more diverse pipeline capacity contracts would be helpful, as currently they are limited to extraordinary tenders, with few short-term options.

By Flávia Pierry