Imported LNG value soars and pressures Brazil to speed up fuel initiatives

The costs of importing LNG (liquefied natural gas) into Brazil have increased by more than 85% this year, driven by soaring prices in the international market with the energy crisis in Europe, although the volume of gas demanded for thermoelectric generation has decreased significantly.

For analysts, the tightening in the international gas market, which should last in the coming years, raises the risk associated with Brazil’s dependence on LNG imports, in addition to exposing the country’s difficulties in taking advantage of its abundant gas supply due to a lack of infrastructure.

Data from the consultancy Wood Mackenzie indicate that the costs of importing LNG by Brazil totaled US$ 2.99 billion (R$ 15.4 billion) between January and August 2022, above the total of US$ 1.60 billion (R$ 8.2 billion) verified in the same period of 2021.

This increase is associated with the recent sharp rise in gas prices, mainly with the energy crisis in Europe, in the wake of the decrease in gas supplies from Russia.

The rising prices overlap with the drop in volumes of LNG imported by Brazil this year, at an average of 15 million cubic meters per day between January and August, compared to 22 million cubic meters per day in the same period in 2021, according to data. by Wood Mackenzie.

“The problem is that Brazil is exposed to spot prices that currently reflect the European spot […] Currently (prices) are above US$ 50 (R$ 258), US$ 60 (R$ 310) per million BTU, which is ten times more than at the beginning of last year”, explains Mauro Chavez, head of studies of gas markets in Europe by Wood Mackenzie.

A survey by the consultancy Gas Energy shows that the activation of thermoelectric plants – the main consumer of LNG in Brazil – had a sharp drop since March, when the government decided to suspend the so-called “dispatch out of order of merit”, triggered last year amid to a serious water crisis.

Brazilian demand for energy from thermoelectric plants has been significantly reduced this year, as the wet season brought favorable rains, which helped to raise the level of hydroelectric reservoirs, the main source of electricity in the country.

The electrical system operator ONS estimates that Brazil will reach the end of September with 49.4% of capacity in the hydroelectric reservoirs in the Southeast/Midwest. In September last year, the level reached 15%.

Brazil still has some LNG thermal plants connected, which operate as inflexible, being activated all the time by the ONS, explains the president of the PSR consultancy, Luiz Barroso.

“Today Brazil is in a much better situation (than in 2021), the full reservoir gives us a lung so we don’t have to turn on these thermals. And it places a very strong responsibility on the ONS to manage this water stock well,” said Barroso.

(Reuters)