New Petrobras contracts have cheaper natural gas, but disappoint industry – 07/14/2023 – Market

The promised reduction in the price of natural gas with the new contracts created by Petrobras has not encouraged large consumers of the fuel, who still see little competitiveness in relation to their competitors abroad.

The first two contracts closed by the state-owned company have a reference price about 10% lower than the contracts currently in force, according to calculations by Abrace (Brazilian Association of Large Energy Consumers and Free Consumers).

The drop reflects the new price calculation formula, which is now equivalent to 11.9% of the Brent oil price in the longer contracts, against 12.9% to 13.9% in the previous model. The new terms were closed with the distributors Comgás, from São Paulo, and SC Gás, from Santa Catarina.

“Before the pandemic, Petrobras used 11.6% of Brent in a four-year contract”, says the director of Natural Gas at the entity, Adrianno Lorenzon. “What we expected was something around 11%, not around 12%, as they negotiated.”

In 2022, the state-owned company raised the price of the input by 50% for new contracts signed throughout 2022, in a process that took states and distributors to court. The company claimed that it needed to complement the domestic supply with more expensive imported gas.

In May, Petrobras launched new supply contracts with more flexible terms and indexes, promising a more competitive product. “The idea is to gain customers,” he said, in an interview with Sheet at the time, the director of Energy Transition and Sustainability at the state-owned company, Maurício Tolmasquim.

Industry executives say, however, that the state-owned company only won the public bids of Comgás and SC Gás due to the lack of competitors with the capacity to supply high volumes of fuel in the Southeast and Midwest regions of the country.

In the Northeast, where independent production grew after the sale of state-owned assets, distributors have been able to access cheaper gas.

“Despite the 15 proposals [de suprimento] for Comgás, nobody had enough volume to tickle Petrobras”, says Lucien Belmonte, superintendent of Abividro (Brazilian Association of Glass Industries). “So the price they define is the price of the rest of the market.”

Belmonte says that the competition promised by the New Gas Law and by the agreement with Cade (Administrative Council for Economic Defense) that obliged the state-owned company to reduce its participation in the sector is still not felt in most of the country.

Different governments have already launched plans to try to lower the price of natural gas, such as Michel Temer’s Gás para Crescer, and the Novo Market de Gás, in which former Economy Minister Paulo Guedes even promised a reduction of up to 50% , unsuccessfully.

Now, the government of Luis Inácio Lula da Silva (PT) has launched Gás para Empregar, with the objective of seeking alternatives to use the input in a process of reindustrialization of the country. The working group that will study the measures was formed this Tuesday (11).

The president of Abiquim (Brazilian Association of the Chemical Industry), André Passos Cordeiro, says that it is still too early to demand results, but emphasizes the importance of reducing the cost of the input for the sector.

According to him, with the war in Ukraine and the sanctions against Russia, Russian gas started to reach the market cheaper, ensuring greater competitiveness for Chinese and Indian industries. In order not to lose market, the United States also reduced their prices.

Thus, Brazil began to be attacked by cheaper imported chemical products. While domestic production fell 13% in the first four months of 2023, imports rose 10%. “The situation of the Brazilian chemical industry is critical”, he says.

The final price has been falling in recent quarters with the decline in oil prices, but it is still well above that of large producers. The market demands changes in the pricing policy so that the product arrives cheaper.

The high cost of the input is the focus of a dispute between the MME (Ministry of Mines and Energy) and Petrobras. The former charges a greater supply of gas to the country, but the state-owned company argues that Brazilian production is expensive, as it is far from the coast, and will never reach the high volumes as in Russia or the United States.

Petrobras has not yet commented on the matter.