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Brazil’s gas distributors extend long-term deals – Argus

Some of Brazil’s natural gas distributors have been signing and reviewing contracts with Portuguese gas producer Galp to extend gas supply by 10 years or more, which might mean less competition among gas suppliers in the next years.

Brazil's gas distributors extend long-term deals - Argus
Brazil’s gas distributors extend long-term deals – Argus

Rebecca Gompertz, Argus Media

EnergiesNet.com 01 11 2023

Minas Gerais state’s gas distributor Gasmig extended its gas supply agreement with Galp to 2042 — the contract was originally signed in 2022 and ended in December 2023. Galp will increase its supply to Gasmig gradually over the years, until reaching 900,000 m³/d in 2026-2032. After that, supply should decrease by 100,000 m³/d every two years until 2041-2042, when it will drop to 250,000 m³/d.

The gas is also priced differently depending on the year and will be priced to a gas contract — the gas-gas method — only after the beginning of 2026. Before that, the contract is indexed to a percentage of the Brent crude price index. Indexation will shift to 115pc of the US Henry Hub price in 2026-2042.

Ceara state’s distributor Cegas also extended its contract with Galp until the end of 2031, which originally ran until the end of 2022. The deal sets a schedule for increases in firm supply with decreases in the amount of put-option supply every year until 2026, when the firm and put-option amounts will settle at 180,000 m³/d and 33,000 m³/d, respectively. Put options give holders the right to sell while counterparties have the duty to buy.

Both firm and put-option supply are indexed to the Brent until 2031. The firm volume will be priced at 11.9pc of the Brent price as of 2024. The put- option molecule is multiplied by 9.9pc of crude oil until the end of the contract.

Espirito Santo state’s gas distributor ESGas and Galp signed a new contract with supply running until the end of 2032. The Portuguese company will supply ESGas with 100,000 m³/d in put option until the end of 2025. After that, there will be no more put option in the contract. Supply starts at 100,000 m³/d in the firm option until 2024, increases by an additional 100,000 m³/d in 2025 and another 100,000 m³/d in 2026, reaching 300,000 m³/d until the end of the term.

Similarly to the Gasmig contract, the ESGas deal shifts from a Brent indexation to 115pc of the Henry Hub in 2026.

The new contracts do not create barriers for regulated gas consumers that are under contract with the distributors to reduce volumes or terminate their deals with regional distribution companies to migrate to the liberalized market, purchasing gas directly from the producers. All contracts include a clause allowing distributors to decrease the amount of gas bought from Galp if its consumers transition to the free market, in the same proportion.

argusmedia.com 01 11 2023

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