Brazil Scrambling For Natural Gas As Drought Threatens Power Output

Brazil’s drought has caused problems for coffee growers and folks charged with keeping up the nation’s hydroelectric plants, but it has been good for the sellers of natural gas and the commodity’s price in Brazil has jumped sharply ahead of the World Cup as the country builds supplies to make up for lost output from dams.

Brazil’s preparations for the World Cup, which starts next week, have come under criticism for failure to complete an adequate infrastructure concerning everything form airports to sports stadiums.

Even the nation’s electric grid has come in for criticism, but that may not be entirely the country’s fault.

According to Platt Energy Economist, a publication of the energy news provider Platt’s:

“Brazil has been hit by severe drought and has been scrambling to find additional supplies of gas to compensate for the lack of hydropower. Imports of LNG to Brazil reached a record in March at 692,051 mt, up 75 percent from the previous 12-month moving average. The country has also signed a short-term deal to increase pipeline supplies from Bolivia.”

To get that gas, Brazil has had to buy in the market that has traditionally fueled Asian markets and that’s driving up the price around the world.

Again, according to Platt’s:

“To secure spot cargoes, Brazil’s Petrobras must offer prices sufficient to attract them away from the Asia-Pacific market, where spot prices in February for March delivery breached $20/MMBtu. It would be an exaggeration to attribute price moves in Asia-Pacific spot LNG markets solely to South American purchases; spot sales are only a small proportion of total LNG sales. But South American importers relying on spot markets rather than long-term contracts can have a disproportionate impact on spot prices when forced to enter the market.”