Brazil seen paying high price for emergency natural gas imports

Tue Jan 8, 2013 2:11pm EST

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By Edward McAllister

NEW YORK, Jan 8 (Reuters) - Brazil is paying top dollar for emergency imports of liquefied natural gas, scrambling to deal with a power crisis as the worst drought in decades threatens hydro-electricity supplies in the country's northeast, regional energy traders said.

LNG traders said state-run energy giant Petrobras has been forced to pay premium prices to secure spot cargoes of LNG due to strong demand for the fuel from Asian countries hit hard by cold winter weather and ahead of planned purchases by Argentina.

The high-priced spot purchases would leave Petrobras with millions of dollars in losses if the company is not able to pass on the full price of the purchases to Brazilian consumers.

LNG traders believe Petrobras may have recently paid as much as $15-$17 per million British thermal units (mmBtu), a large premium to domestic gas prices.

Asian prices rose above $17 per mmBtu last week as a cold snap boosted purchases. LNG prices in Europe are currently around $11 per mmBtu.

In the United States, abundant domestic gas is priced just above $3 per mmBtu.

"The drought in the north (of Brazil) is very aggressive, so Petrobras is having to balance it out with LNG purchases," said one LNG industry source who trades in the region. "They are buying everything they can so they will not be left short."

Brazil has two LNG import terminals, one in Pecem, a few miles north of Fortaleza in the northeast, and one in Rio de Janeiro in the south.

LNG, which is natural gas cooled to a liquid state for shipping, is generally used as a substitute fuel in Brazil during the dry months when hydro power levels fall.

Petrobras is expected to purchase about four cargoes per month for January and February, the source said.

Two LNG cargoes have already arrived at the Pecem terminal in the northeast this month. The facility usually does not receive any natural gas in January or February since normal rainfalls encourage maximum use of hydro-power.

A third tanker, the Excelsior, is currently anchored a few miles from the terminal, Reuters ship tracking data shows. The Arctic Voyager tanker was expected in Brazil on Jan. 22. (Additional reporting by Oleg Vukmanovic in London; Editing by Peter Galloway)

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