Brazil's hydrocarbons regulator ANP published this week the first contract amendments signed by state gas distribution companies and state-controlled Petrobras for long-term natural gas supply agreements, with new pricing mechanisms related to Brent crude indexation.
The provisions, which will take effect on 1 August, introduce Petrobras' new gas pricing model, unveiled at the end of June. The model establishes Brent crude price floors and ceilings to be used as the benchmark for pricing regulated gas contracts in Brazil.
The move softens the impact of the recent crude price hikes on Brazil's gas supply prices, following requests from consumers concerned about the prolonged Mideast Gulf war. Before the agreement, many had warned that higher gas prices could become economically unsustainable, leading to demand destruction and a shift toward alternative energy sources.
According to ANP's regulated gas market contract monitoring webpage, state distribution companies Copergas, ESGas and Potigas have reached agreements with Petrobras establishing a Brent price floor of $61/bl, from February 2027-January 2029, and a ceiling of $85/bl, from August 2026-January 2027, to determine gas prices under long-term contracts.
The ceiling will already be triggered during the year's third-quarterly price adjustment, scheduled for 1 August. As a result, gas prices for distributors will increase by approximately 4pc in those contracts. Without the cap, prices would increase by around 18.5pc. This means that a contract indexed at 11pc of Brent will price the gas at approximately R1.76/m³ ($0.34/m³), up from R1.69/m³. Without the contractual amendment, the price would have risen to R2.01/m³.
Long-term gas supply contracts in Brazil are currently based on quarterly averages of external benchmarks — typically Brent crude — with price adjustments made in February, May, August and November, following the average US dollar/Brazilian real exchange rate.
The latest adjustment took place on 1 May, when the average regulated-market contract price indexed exclusively to Brent rose by 21pc over the February adjustment.