Petrobras wants to increase price of gas to distribution companies in Brazil by 50%

RIO DE JANEIRO, BRAZIL –  Petrobras wants to increase by 50% the price of the gas it sells to distribution companies in Brazil and whose contracts expire this December. The increase implies a rise of 8 to 12 dollars in the price per million BTU.

The state-owned oil company defends the need to adjust the price of gas to the international increase in LNG, but the distributors question the fact that it is not complying with the opening of the Brazilian market.

The proposed price increase is due to the sharp rise in the price of LNG that Petrobras has been importing to complete the domestic supply. The company considers that LNG is “indispensable” to meet local market demand in 2022, in view of the decline in production from Bolivia and low hydroelectric production.

“It is important to highlight that, in order to meet Brazilian demand for natural gas in 2022, it is essential to complement supply with LNG imports.

It is noted that the high demand for LNG and the limitations of international supply derived in a significant increase in the international price, which rose about 500% in 2021, with a tendency to maintain the high price in early 2022,” the company communicated in early November.

EXPIRATION AND NEW CONTRACTS

On December 31, contracts between Petrobras and distribution companies throughout the country, which represent more than 60% of the national consumption of natural gas, will expire. The oil company improved the price for the long-term contracts but left the short-term contracts unchanged.

According to the information provided by the distributors, Petrobras offered a four-year contract starting next January, with a 50% increase in the price of gas, which in the first year will jump from 8 to 12 dollars per million BTU.

From the second year onwards there will be upward or downward adjustments depending on the evolution of international prices.

The proposal represents an improvement with respect to what was offered at the beginning of November: a four-year contract with a price of US$ 20 per MMBTU. However, Petrobras did not modify the commercial conditions of the shorter-term contracts.

For a 1 to 6 month contract, the price is still U$S 35 per MMBTU and for a one-year contract, the price is similar. These prices are similar to those being paid in JKM, the reference spot market for gas trading in Asia.

CRITICISM FROM DISTRIBUTORS

The Brazilian Association of Piped Gas Distribution Companies (Abegás) expressed the distributors’ disagreement with the new proposal of Petrobras, which, despite the opening of the gas market, continues to operate in fact as the only supplier of the fuel in Brazil.

The new Gas Law enacted this year opens the gas market to private capital, mainly in the transportation and commercialization sectors, in which Petrobras exercises a historical monopoly.

A strong point introduced by the law is the entry and exit model that allows marketers to pay a fee for using the gasification and gas transportation infrastructure, putting an end to Petrobras’ monopoly over them.

But little progress has been made in adapting to the new law, both at the national and state levels. Abegás warned that “the market still faces barriers to an effective opening, which has been affecting the competitiveness of the price of the molecule.”

He added that there is still a lack of measures to allow other suppliers to have access to the processing and transportation infrastructure of the fluid. The supply of other producers and importers is much lower, so they do not have much of an alternative to the gas supplied by Petrobras.

The state-owned oil company improved the price after Abegás went to the Administrative Council for Economic Defense (CADE) to denounce anti-competitive practices. The association said that it maintains with CADE “the requirement to maintain the contractual conditions in force until the adequate analysis of all aspects of the market and possible anti-competitive actions by the dominant agent to prevent other agents from offering the gas molecule.”

The Association of Large Industrial Energy Consumers and Free Consumers (ABRACE), which represents almost 40% of industrial electricity consumption in Brazil and 42% of industrial natural gas consumption, expressed itself in similar terms.

In a press release, ABRACE warned that “the four-year contracts will be carried out in order to block the opening of the market”. It announced that it will mobilize together with the Gas Forum and the associations of the União pela Energia movement to promote, together with Petrobras and the government, a discussion on “the need for competitive natural gas prices to produce and find markets in the face of international competitors.”

GAS PRICES AND THE 2022 ELECTORAL RACE

The discussion on the price of gas is also a part of Brazilian politics. The increases in gasoline prices carried out by Petrobras affected the image of the government of President Jair Bolsonaro’s administration, which now faces similar questions about the price of “cooking gas” (LPG) in homes and natural gas by industries.

Brazil’s former President Luiz Inácio Lula da Silva, who will compete next year in the presidential elections, said last Tuesday that he would change Petrobras’ current pricing policy and that the state-owned company should generate profits for the Brazilian people.

“I say it loud and clear: we are not going to maintain this policy of raising gas and naphtha prices that Petrobras has adopted because it has leveled prices with the international market,” Lula said.

The one in charge of answering him from the government was the Minister of Economy, Paulo Guedes, who questioned the former president’s intentions. “There is a former president all the time with his hand covered with grease who says he wants to take back Petrobras. To take back what? To plunder?” Guedes questioned Lula.

He also suggested privatizing Petrobras, a possibility that Bolsonaro openly proposed in October, annoyed by the questioning received for the company’s fuel increases.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error