Petrobras offers gas at twice the price in an election year

The government’s promise to promote a cheap energy shock with the opening of the natural gas market during this term of President Jair Bolsonaro (no party) will not be fulfilled.

Petrobras, which still supplies most of the market, has already warned distributors and large consumers with contracts expiring at the end of this year that there will be no renewal and will only be able to supply fuel for twice the price.

This move by the state-owned company is relevant and will have an impact on the economy in an election year because, as of January, 70% of the market will be without a contract, according to the account of the distributors.

Abegás (Brazilian Association of Pipeline Gas Distribution Companies) evaluates to formalize in Cade (Administrative Council for Economic Defense) a complaint against Petrobras for abuse of economic power, hurting clauses of the terms of commitment signed last year that would guarantee the end of the monopoly in this sector.

With no alternative for new suppliers, these companies will remain hostages to the state-owned company. The international market lacks fuel, which made import prices soar. Companies that produce here are only able to supply 25% of the market’s needs. Not even Petrobras will be able to serve all those interested.

According to Abegás, the state-owned company’s most advantageous proposal provides for gas at almost US$ 20 per million BTU, which would practically double the price — currently at US$ 11.

The contracts proposed by the company range from one month to four years and the price is discounted on the longer contract. Distributors are trying to negotiate a six-year, priced between $10 and $15 per million BTU.

These contracts would have the possibility of revisions every three months in the first year, in case new suppliers with better prices appear. There is still no agreement.

Gas is a fundamental input for the glass and ceramics industry, and it supplies energy generators (thermoelectric plants). Residential consumers would have a considerable increase in their bills.

This situation harms Bolsonaro, who intended to make a political profit from the drop in energy prices through the expansion of gas use.

This would happen because, last year, Petrobras signed an agreement with Cade (Administrative Council for Economic Defense) in which it agreed to withdraw from the gas transport and distribution market, putting an end to the monopoly.

The measure was announced by the government and the Ministry of Mines and Energy and the Ministry of Economy celebrated the creation of the so-called Novo Mercado do Gas.

More companies would establish themselves in this market because they would have free access to pipelines that previously belonged to Petrobras. They could create companies across the country investing in the construction of more gas pipelines. This movement would make the offer grow, bringing down the price.

“But with asset sales [decorrente da abertura do mercado após acordo com o Cade], Petrobras was left without an import terminal in Bahia for two years and ran out of gas that it could buy from partners in the pre-salt fields,” says Augusto Salomon, president of Abegás.

“Basically, it only has the gas it produces. Of this gas, it consumes 14 million cubic meters per day in its activities”, he completes. Other private producers and importers have already disputed contracts, but with insufficient volumes to replace the state-owned company.

Salomon also explains that private oil companies with reserves in the country have little interest in selling gas, because they took investment decisions considering the increase in oil production and not distribution.

People participating in the negotiations claim that, for this reason, the state-owned company sent a letter to distributors, especially those in the Northeast, stating that it would not be possible to renew the contracts that expired.

However, the company opened up the possibility of supplying the gas in contracts known as spot (short-term). In this type of operation, the price fluctuates according to the international quotation.

The problem is that the price soared. Among the reasons are the delay in the construction of the new gas pipeline in Russia, increased demand in Asia, and the prospect of a severe winter in the Northern Hemisphere. In November of last year, the price was $5.27 per million BTU. Today, it jumped to $27.14.

This effect caused losses for Petrobras, which, in the third quarter of this year, registered a net profit of R$ 20 million in the area of ​​gas and energy, a drop of 98.5% in relation to the previous quarter.

A traditional Brazilian supplier, Bolivia no longer has the capacity to expand its deliveries, which are already held at the limit of 20 million cubic meters per day.

According to analyst Rivaldo Moreira Neto, partner at consultancy Gas Energy, internally, domestic production grew less than expected and, on the other hand, Brazil is demanding a lot of gas to ship thermal plants as a way to avoid blackouts in the face of water shortages.

“The situation is really a reason for concern. The problem is real, there is a limitation in the global supply”, says Moreira Neto. “The market was opened, but it still depends on Petrobras”.

Market estimates indicate that new suppliers could only meet about 10% of the market’s supply needs.

“Now we have to live with an unavoidable price crisis, because the price has changed for next year. It’s an election year, inflation is already very high. The moment is very sensitive”, says Moreira Neto.

“We lost a very important opening window”, says Moreira Neto. “We even followed several free market negotiations with private suppliers, with prices and offers on the table, but the agents were not able to sign contracts.”

When consulted, Petrobras did not confirm whether it will readjust the new contracts. Through its advisory, the company informed that “it will comply with the contracts signed with the various clients”.

“The Company is participating in public call processes of the Local Distribution Companies considering its availability of gas,” the company said in a statement.

The company explains that there was a reduction in supply “due to the fulfillment of the TCC’s commitments with Cade, notably the reduction of the import restriction from Bolivia by about 10 million m³/day and the leasing of the Bahia Regasification Terminal (TRBA) , in addition to divestments in production fields”.