Q&A: Brazil adds Asian indexation for flexible gas

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