Petrobras approved new contractual models for the sale of natural gas to distributors. The company will offer, in addition to the current modalities, indexed to the Brent oil price, a pricing alternative with less volatility, without giving up alignment with international prices. The new model will be indexed to the prices of Henry Hub, a widely used reference that serves as a benchmark for new liquefaction projects in the USA. The new formula will still be negotiated with customers, and will not necessarily have a material impact on prices. In addition, there will be no changes in the transport portion of the gas price.
The studies to offer these new contractual models started in 2020 and are part of the change process started in 2019. In addition to meeting the needs of our customers, the studies were motivated by the proximity of the term of non-thermoelectric contracts (with most of them starting to contract since 2022), by indexing the Henry Hub in public calls to local gas distributors and by the prospect of a more competitive environment, where Petrobras seeks to offer products and solutions with greater competitiveness, with the objective of maximizing the company's results.
In the current market context, a new competitive dynamic is expected with the prospect of accelerating the opening of the natural gas market. In order to renew the portfolio of contracts for the sale of natural gas by Petrobras, new products were developed that will favor the contracting of consumption base, with the differential terms of contractual terms, including the alternative of contracts with a longer term, less flexibility. consumption and, on the other hand, more favorable price conditions than the current products in the Petrobras portfolio. The products will also allow greater freedom of choice for customers, as they have different indexes of the portion of the molecule, with two options of this parameter, one with a gas-gas index (Henry Hub) and the other with Brent oil. The choice can be made at the customer's discretion, meeting the market demand for more flexibility in price formulas. The pricing formula will be announced as soon as trade negotiations are concluded.
The natural gas market in Brazil is in the process of opening, encouraging competition, with the entry and consolidation of new players in all links of the value chain. In line with this market opening movement, the company will offer its customers the option of better managing the gas purchasing portfolio, not only with regard to price formation, but also with regard to contractual terms, insofar as they will be able to select horizons of 6 months and from 1 to 4 years, in a more adherent way to their needs. The portfolio of products offered will allow customers to match seasonality of consumption and meet specific short-term opportunities (products of 6 months or 1 year) and hire basic products for a slightly longer period, with greater consumption stability.
One of the most well-known gas-gas indices is the price at Henry Hub. It is a physical hub (a kind of gas pipeline junction with access to countless gas sellers and buyers, who can freely exchange between themselves, thus generating, at each moment, an equilibrium price, resulting from these various negotiations) located in the Gulf of Mexico region, in the United States. Henry Hub has high liquidity, transparency in pricing and trading in an exchange environment. In addition, with the beginning of LNG exports from the United States starting in 2016, Henry Hub started to be widely used as a reference in new long-term international LNG contracts from the United States.
Considering all these aspects, Petrobras chose Henry Hub as a gas-gas index for its new products. Based on the history of the past few years, this is also a more stable and predictable benchmark, and therefore will offer an additional option for customers who value these attributes.
Current contracts remain an option for customers
The new gas-gas model will be offered as an option to current contracts, which associate the prices of the gas molecule with the Brent oil quotation and the exchange rate and which came into force in January 2020. This contractual modality based on Brent transfers from changes in international markets more directly, both reductions and increases. With this formulation, Petrobras sought greater simplicity, transparency and reduced risk of misalignment of prices with the structural parity of LNG imports, in addition to other energy substitutes. Brent is a highly liquid price marker that is widely used in long-term contracts in the world LNG market.
The characteristics of these contracts were quickly perceived over the past year, when they came into force. From December 2019 to October 2020, gas prices in dollars decreased by more than 48%. With the recovery of commodities in the following months, gas prices also recovered. Even with the update this May, the price of gas at the city-gate (where Petrobras sells gas to distributors) remains about 8.6% below the level of December 2019, keeping gas competitive compared to the main ones. substitute fuels.