Brent, FX drive Brazil natural gas price hike

Average Brazilian natural gas network prices have continued to increase this year, maintaining their differential to the North Sea Dated crude benchmark, amid higher Brent crude prices and the Brazilian real's depreciation to the US dollar.

Brazilian pipeline gas prices rose by 6.7pc to $12.15/mmBtu on 24 May from $11.39/mmBtu on 2 January — while crude rose by 5.9pc, according to Argus data. That increase was more than four percentage points higher the increase in Henry Hub Day-ahead gas index price, which rose by 1.6pc.

The Brazilian real depreciated by 5.3pc to R5.1508 to the US dollar on 24 May from R4.8916/$1 on 2 January. Brent prices, the real-US dollar exchange rate and the Henry Hub index are the main indexations of natural gas contracts in Brazil.

North Sea Dated and Brazilian natural gas prices spiked sharply starting in early April, with crude peaking on 13 April at $93.19/bl and Brazilian gas at $13.525/mmBtu, because of dueling missile strikes between Israel and Iran.

Price increases were spearheaded by Transportadora Brasileira Gasoduto Bolivia (TBG), with that pipeline system reaching $12.833/mmBtu on 24 May, up by more than 12pc from January. Brent accounts for a larger percentage of the price for contracts on that grid than any other, at 16.75pc. The terms were signed in 2022, during the early months of the Russia-Ukraine war when global gas prices were rising. State-controlled Petrobras is a supplier in most of these contracts, but Portugal's Galp also owns a few deals.

Average natural gas prices in the 4,500km (2,796-mile) pipeline owned by Transportadora Associada de Gas (TAG) — which operates in the north, northeast and southeast — were at $11.607/mmBtu on 22 May, a 2.9pc rise from January. Over 40 long-term contracts are connected to the TAG pipeline, reflecting the most diverse chunk of the Brazilian market.

The 2,000km Nova Transportadora do Sudeste (NTS) pipeline — which links Rio de Janeiro, Minas Gerais and Sao Paulo states with Bolivia — has eight different contracts with indexation to Brent above 12.9pc, including all of Rio de Janeiro's contracts.

The most recent expanded premium to the US gas benchmark price — which stood at $2.60/mmBtu on 23 May — indicates a rise in gas demand driven by cooling across south-Atlantic US states. Extreme weather was responsible early in the year for a hit on spot and futures prices, notably on 12 January, when Henry Hub Day-ahead price posted a sharp rise above $12/mmBtu.

By Betina Moura