Brazil's TAG to buy linepack gas from Galp: Update

Updates with TAG comment

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 owned by Petrobras, and thus must be purchased by new gas shippers that are coming to the market.

TAG said it needed to acquire its own linepack in order to support new shippers in the recently opened Brazilian gas market. The 13mn m³ is the minimum volume that TAG is required to purchase at this time.

The deal will increase TAG's transportation tariff, since the deal value will be incorporated into TAG's assets with costs passed through to shippers. TAG commercial and regulatory director Ovídio Quintana said the contract will not add new costs to consumers, but rather reveal costs that were previously allocated to Petrobras' gas supply agreements with its clients.

The purchase of gas made by a public tender resulted in the most competitive proposal, with a reduction of around 50pc of the initial offer price, Quintana said. "It was an unfavorable international scenario to acquire gas, and we are proud to have selected the most competitive alternative considering the spot basis and short term delivery".

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