Q&A: Brazil adds Asian indexation for flexible gas

Market: Natural gas
13/05/24

Three years after the natural gas market liberalization in Brazil, the number of consumers migrating from regulated supply has slowly increased and more flexible pricing mechanisms adopted. Argus spoke to Alessandro di Domenico, president of gas and power trader Delta Geração, about the current state of the market. Excerpts follow.

Explain Delta's supply contract with Bolivia through 2026 despite Bolivia's gas production decline.

The decline in production will happen because there is less investment [in Bolivia] than a few years back. But there are still some volumes that can supply the Brazilian market, especially in flexible contracts in the liberalized market. There is some gas that was being directed to Argentina and is now available. Even with the decline in Bolivia production, we will continue to have natural gas in the short-term.

Besides that, the Rota 3 pipeline project [in Brazil's southeast] is close to being completed, which will bring more gas from pre-salt fields, leaving the market with more supply. This boosts the growth of the liberalized market. Delta is positioning itself to meet those demands and will sign other supply contracts soon.

What types of contracts has Delta and others signed in the liberalized market?

These are interruptible contracts. Their innovation relies on flexibility. Volume and duration are flexible. This allows us to meet clients almost back-to-back.

How are these flexible contracts priced?

They are competitive with the regulated market and are connected to international parity prices. Contracts are using Brent, Henry Hub and [Japan-Korea marker LNG spot prices].

How has the market progressed since 2021?

This market was born rigidand is now gaining flexibility, in baby steps. In the beginning, there were only three consumers: Acelen, Brazilian steelmaker Gerdau and petrochemical group Unigel. Now we have companies in the cellulose business, metallurgy and automotive industry, which are all gas-intensive.

So, in the future, there will be a big movement depending on state regulations, because that is an important axis of articulation for the mobility the liberalized market requires. State regulations play a very important role in allowing smaller entities to enter the market.

By Rebecca Gompertz

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12/11/24

Finnish, Baltic gas demand falls on year in October

London, 12 November (Argus) — Aggregate Finnish and Baltic gas consumption dropped by nearly 24pc on the year in October, but still reached a six-month high as the heating season began. Combined demand in Finland, Estonia, Latvia and Lithuania last month rose to 3.19TWh from 2.61TWh in September , in line with the typical seasonal progression, but was well below the 4.18TWh consumed a year earlier and the average of roughly 5.2TWh in 2018-21 ( see consumption graph, data and download ). Demand in all four individual countries was lower on the year, with the biggest drop in Lithuania, where consumption fell by more than 600GWh. In October 2023, the region's biggest consumer Achema had briefly resumed full production at both of its ammonia production units at Jonava , boosting Lithuanian demand that month. Despite the year-on-year drop, this was the fifth consecutive month-on-month increase after demand hit a near two-year low in May. Cumulative demand in the first 10 months of the year totalled 35TWh, well up from 30.3TWh a year earlier. That said, strong demand in the first quarter when the region experienced a prolonged cold snap supported a slightly skewed figure. If only considering April-October, demand of 18.5TWh was slightly below last year's 18.9TWh and well under the 30TWh average in 2018-21. This may indicate a more structural decline in the region's gas demand, particularly with power-sector demand falling as higher nuclear and renewables output cuts into the room left available for gas in the generation stack. Gas-fired power generation in the four countries totalled 186GWh last month, Fraunhofer ISE data show. This was well below 307GWh in October 2023, and the second lowest for any October since at least 2018 ( see gas-fired power graph ). Gas-fired output was lower on the year in all four countries, with roughly 40GWh drops in Lithuania, Finland and Latvia. Onshore wind production in Finland, by far the region's largest overall power producer, jumped by more than 1TWh on the year, more than offsetting lower nuclear and hydro output. This allowed Finland to net export around 150GWh of power, having net imported nearly 300GWh in October 2023, according to Fraunhofer data. Prices on the regional GET Baltic exchange averaged €41.74/MWh in October, up by 3pc on the month but 18pc down on the year. The price on the exchange "increasingly correlates with" the TTF, a correlation that will likely strengthen as GET Baltic trading migrates to the larger EEX platform next year , chief executive Giedre Kurme said. This transition will "create opportunities for competition, more liquid trading and price convergence", and "we are already seeing increased interest from international participants in the Baltic-Finland region", Kurme said. Firms traded 708GWh on the exchange in October, the most for any month since February, and all transactions were on the daily market. The joint Latvian-Estonian market accounted for 43pc of total trades, followed by Lithuania at 31pc and Finland at 26pc, GET Baltic said. Maintenance continues to limit Finnish LNG sendout Extensive maintenance on the Balticconnector pipeline this month, which makes all southbound capacity from Finland towards Estonia unavailable, continues to limit sendout from Finland's Inkoo LNG terminal. After maintenance on the 14-27 October gas days took exit capacity towards Estonia fully off line, this capacity is again unavailable because of further maintenance on 4-17 November. Without southward pipeline capacity, sendout from Inkoo must fall to levels that only the domestic market can absorb. Inkoo received the 145,000m³ Arctic Princess just before the maintenance started on 3 November, and the next scheduled delivery is not until 28 November ( see LNG data and download ). Sendout is likely to remain low even after the end of maintenance so as not to fully deplete stocks before the next arrival. Sendout from Inkoo averaged 23 GWh/d on 4-11 November. In contrast, sendout from Lithuania's Klaipeda terminal has jumped to 104 GWh/d this month, helping to plug the Baltic supply gap left by no southward inflows from Finland. Sendout from Klaipeda has been higher this month than the 85 GWh/d in October and 80 GWh/d on 1-11 October last year. Klaipeda has already received two cargoes this month, on 4 and 12 November, and will receive a further two on 21 and 29 November, the terminal's schedule shows. This suggests that sendout is likely to remain brisk for the rest of this month, helping to meet higher regional demand as the weather turns colder and limits the need for strong withdrawals from storage early in the winter season. By Brendan A'Hearn FinBalt gas consumption by country GWh Gas-fired power generation by country GWh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Cop: UK sets ambitious 2035 climate target

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12/11/24

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Cop: Azerbaijan president criticises ‘petrostate’ label

12/11/24

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12/11/24

Cop: Azerbaijan president criticises ‘petrostate’ label

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12/11/24

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Record Permian volumes lift US oil majors

11/11/24

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11/11/24

Record Permian volumes lift US oil majors

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