Brazil spot LNG buys could increase due to measures to preserve hydropower levels

A recent decision by Brazilian authorities to boost natural gas-fired power generation to ensure grid reliability amid low water levels in reservoirs used for hydropower could increase LNG spot purchases by state-led Petrobras, market sources said Aug. 13.

During its most recent meeting on Aug. 7, the Electric Sector Monitoring Committee, or CMSE, led by the energy ministry, recommended measures to safeguard power supply amid the low hydropower levels in Brazil's northern region, including the utilization of thermal power, according to a CMSE notice published Aug. 8.

Considering current conditions in the Madeira and Purus rivers and the potential for continued dry conditions in the northern region, the CMSE advised power grid operator ONS to minimize the dispatch of hydropower plants in the area to conserve water resources for peak demand in October and November.

Petrobras' LNG purchases remain closely tied to hydropower availability and any reductions in hydro generation could prompt the company to turn to the spot market, the sources said.

Petrobras was reportedly seeking LNG cargoes for September delivery to address potentially lower hydro reservoir levels, according to an Aug. 13 report from Bloomberg.

A Petrobras spokesperson, however, declined to comment on the potential purchases.

The levels in the country's four hydro reservoir subsystems remain within average levels overall, with the Northern subsystem at 81.8% capacity and the Northeastern subsystem at over 60%, based on ONS data updated to Aug. 12. The national grid's average storage level for the week of Aug. 7 was 66%, according to the CMSE notice.

Petrobras might purchase spot cargoes as a precaution against declining hydro levels and could resell them if hydro reservoir conditions do not deteriorate as expected, a Brazil-based source said.

While an Atlantic-based trader said Petrobras has not been highly active in the market recently, other sources previously said the company has been opportunistically buying LNG cargoes when prices are favorable, keeping them as floating storage on LNG tankers it currently charters off the Brazilian coast.

Petrobras has imported around 28.65 Bcf of LNG so far this year, with 27.54 Bcf delivered to the regasification terminal it operates in Bahia state, S&P Global Commodity Insights data showed Aug. 13. The last cargo Petrobras imported arrived at the Bahia terminal on the LNG Enterprise Aug. 1, which had previously delivered volumes at the Edge-operated Sao Paulo regasification terminal, based on the data.

An LNG tanker, the Grace Dahlia, was traveling off the northern Brazilian coast, with the Bahia terminal as its intended destination and an estimated arrival date of Aug. 19, S&P Global Commodities at Sea data showed Aug. 13.

Platts, part of Commodity Insights, assessed the DES Brazil for deliveries 15- to 45-days forward at $12.247/MMBtu on Aug. 13, down 21.3 cents/MMBtu on the day.