By Brazil Stock Guide — Brazil has taken a significant step toward reducing energy costs for its industrial sector. In the country’s first auction of government-owned natural gas, held Thursday (October 22), state-run Pré-Sal Petróleo (PPSA) sold its entire offering of 1.1 million cubic meters per day to 23 companies, including mining giant Vale, steelmakers CSN and Gerdau, petrochemical producer Braskem and fertilizer manufacturer Yara.
The estimated average price of the gas itself was $5.83 per million British thermal units (MMBtu), substantially below prevailing benchmarks in Brazil’s domestic market.
For the first time, the Brazilian government sold natural gas obtained under pre-salt production-sharing agreements directly to industrial consumers, offering an alternative to traditional supply arrangements. The auction attracted 36 qualified companies, 32 of which participated, with demand reaching approximately 1.5 million cubic meters per day, exceeding the available supply.
The auction generated an estimated R$377 million in proceeds. All 110 lots were sold, with an average premium of $2.44/MMBtu, approximately 35% above the initial bidding premium of $1.80/MMBtu. Supply contracts will cover the period from March through December 2027.
Major industrial companies seek cheaper energy
The chemicals and petrochemicals sector accounted for the largest allocation, securing 350,000 cubic meters per day. Winning bidders included Braskem, Rhodia, Evonik, Ingredion and Peróxidos do Brasil.
Steelmakers, metals producers and mining companies purchased a combined 320,000 cubic meters per day, with Vale, CSN, Gerdau Aços Longos, Samarco and Ternium Brasil among the successful bidders.
The remaining volumes were allocated to ceramics manufacturers, with 200,000 cubic meters per day; nitrogen fertilizer producers, with 130,000 cubic meters; and glassmakers, with 100,000 cubic meters. Other successful participants included Brazilian building materials producer Dexco, Yara and major ceramic tile manufacturers.
Competition varied significantly across industries. The winning premium stood at $1.92/MMBtu for chemicals and petrochemicals and $2.30/MMBtu for steel, metals and mining. Glassmakers faced stronger competition, with an average premium of $4.01/MMBtu.
These premiums are components of the contractual pricing formula rather than the total cost of the gas.
The auction price is not the final delivered cost
The auction’s main attraction lies in its pricing structure. Contracts are indexed to 115% of Henry Hub, the benchmark for U.S. natural gas prices, plus the premiums established during bidding.
Based on PPSA’s reference assumptions, the resulting estimated average price was $5.83/MMBtu, compared with market references of approximately $12/MMBtu for natural gas in Brazil.
However, the comparison comes with an important caveat: the auction price excludes transportation, distribution charges and taxes, all of which can account for a substantial portion of the final bill paid by industrial consumers. The gas price will also fluctuate throughout the contract period, reflecting monthly movements in the Henry Hub benchmark.
Gas will be delivered at the outlet of the Itaboraí Gas Treatment Unit, located at Petrobras’ Boaventura Energy Complex, formerly known as Comperj, in Rio de Janeiro state. From there, buyers will need to arrange transportation through pipeline networks to their industrial facilities, either directly or through gas trading companies.
Actual savings will therefore depend on factory locations, pipeline tariffs and the terms of each company’s existing supply contracts.
For companies such as Vale, CSN and Braskem, the auction offers an opportunity to reduce energy expenses. However, the volumes acquired by individual companies and their final delivered gas costs have not been disclosed in sufficient detail to assess the potential impact on operating margins.
A new market for Brazilian natural gas
The auction also provides an important test of Brazil’s energy policy. By selling its entire offering and attracting demand above the available volume, the government demonstrated substantial industrial interest in additional sources of competitively priced gas.
PPSA President Luis Fernando Paroli described the result as a milestone for Brazilian industry. From the government’s perspective, direct sales of pre-salt gas could encourage competition and help turn the country’s offshore energy resources into a competitive advantage for energy-intensive industries.
The initiative is expected to expand. PPSA plans to hold another auction in 2027, offering 1.8 million cubic meters per day for delivery in 2028, approximately 63% more than the volume sold in the inaugural auction. Contracts from this week’s sale are expected to be signed in the first half of December.
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