Existing Petrobras prices

According to the different times when contracts were signed, Petrobras had a standard gas price and length. At the end of 2021, Petrobras offered a four-year condition starting in 2022, named NMG 2022-2025, offering an 11.6% Brent price for the final two years of the contract. In 2023, a new price of 13.9% Brent was proposed for a five-year contract starting in 2024 (NMG 2024-2028) and a price of 12.9% Brent for a nine-year contract starting in the same year (NMG 2024-2032). These contracts were replaced by the latest price condition, discussed last year, which set a price of 11.9% Brent for an 11-year contract. The figure below shows how each of these contracts is composed in Petrobras’ sales portfolio for LDCs with around 34 million cubic meters per day (MMcmd) of contracted volume in the segment.

New expected commercial conditions

Despite no contracts being published so far, Rystad Energy can estimate the new commercial conditions by matching information obtained from public announcements by the companies involved, alongside media news and market discussions.

The main anticipated change is a shift in price from 10.9% to 11% Brent, which will only be applied to the higher levels of contract utilization. As seen in Figure 1, Petrobras has different valid prices composing the first 60% of contract utilization, while additional volumes, up to 105% of total contract usage, will have the lower price condition applied. This means a different discount will be applied to each gas buyer. The figure below shows an example of this composition for the higher price available (13.9% Brent) and the new expected price of 11% Brent until the end of 2025.

Other commercial conditions such as ‘take or pay’, ‘delivery or pay’ and penalties are not expected to be changed.

The price point of new contracts remains unknown, however, recent news points to a price of around 11.3% Brent for free market clients. This price reference would be equivalent to an LDC with 11.6% Brent utilizing the maximum volume of the new lower price. This would not imply a cost reduction if the price were valid for the same period but can represent a reduction for clients inserted in markets with a higher price.

Market impact
By offering this model of price composition, Petrobras positions the additional volume lower than most of its competitors in the market. Therefore, Petrobras can have an upside effect on gas sales, especially for marginal purchases.

The lower price also positions Petrobras to offer a lower gas price than long-term liquefied natural gas (LNG) contracts. Brazil has an abundance of private regasification terminals that are going to be connected to the gas grid and will be able to compete for market share.

Additionally, the proposed discount is expected to be valid only until December 2025, meaning that the long-term price for Petrobras has not necessarily changed. In the short-term, the new measure is expected to imply a cost reduction for LDCs of more than $300 million, if applied to all Petrobras contracts within the sector from June 2024 to December 2025.

Other domestic gas producers will also face a higher preference for Petrobras’ additional volumes, potentially reducing interest in daily transactions. Some players are expected to copy the price structure with a lower spread to guarantee competitiveness in base and additional contracted volumes.

Finally, gas export projects in Bolivia and Argentina could face a lower price point than before to reach the Brazilian market, however, there has been no price disruption. Projects with higher cost spread can still find opportunities in the Brazilian market.

Authors: 

Vinicius Romano

Vice President, Gas Research, Latin America
vinicius.romano@rystadenergy.com

Murilo Romera de Albuquerque

Analyst, Gas Research, Latin America
murilo.albuquerque@rystadenergy.com

Gabriela Sanches
Analyst, Gas Research, Latin America
gabriela.sanches@rystadenergy.com

(The data and/or forecasts in this column are Rystad Energy's, and the opinions are of the authors.)