Brazil's TAG to buy linepack gas from Galp

Brazilian pipeline TAG, which ships natural gas along the northeast coast between Rio de Janeiro and Ceará state, agreed to purchase linepack gas to pressurize the pipeline system from Portuguese oil and gas company Galp.

Galp agreed to deliver 13mn m³ to fill the TAG pipeline for a price of about $18/mmbtu. The total transaction is valued at R48.8mn ($8.9mn) and the gas must be delivered by the end of this month.

Galp was awarded the contract in a TAG open season conducted at the end of 2021. Prior to Brazil's market opening, the linepack gas was supplied by Petrobras.

The deal will increase TAG's transportation tariff, since the deal value will be incorporated into TAG's assets with costs passed through to consumers.

The price is higher than gas consumers expected, said Adrianno Lorenzon, natural gas director at Brazilian association of energy intensive consumers ABRACE.

"This value is well above what is being negotiated in the new contracts in the Brazilian gas market, especially those of alternative suppliers, where we see values below $10/mmbtu," Lorenzon said.

Including the linepack gas cost in the pipeline asset "generates perverse incentives" for the pipelines, since the higher the gas cost, the higher their remuneration will be, he said.

TAG also awarded contracts for balancing and maintaining optimal volumes in the pipeline system. Gas for that purpose will be supplied by Excelerate energy, using LNG imported via the Bahia terminal, leased by Excelerate, at a price that is 105pc of the Asian LNG price, for a maximum volume of 1.2mn m³/d.

For gas withdrawals needed to maintain optimal pressure in the pipeline system, TAG contracted with Petrobras to receive gas at the Terminal Cabiúnas in Rio de Janeiro at a maximum volume of 1.2mn m³/d.

By Flávia Pierry