In 2025, Up to 3.5 Mcmd in play as spot gas market challenges firm contracts in Brazil

Brazil's Local Distribution Company (LDC) market dynamics are set for significant changes in 2025, with a notable shift towards spot market transactions, according to a recent report from Wood Mackenzie.

According to the report “Spot gas market in Brazil: the next big shift?”, up to 3.5 Mcmd of contracted LDC volumes may shift to the spot market in 2025, as distributors leverage Take-or-Pay (ToP) flexibility to secure lower prices ranging from US$5.9 to US$10.5/mmbtu.

"We are seeing the market enter a new phase," says Javier Toro, Senior Research Manager for Wood Mackenzie’s Southern Cone Gas and Power service. "The spot market is no longer just opportunistic. It's a viable alternative for daily operations, with tactical gains evolving into strategic decisions. This shift also confirms the dynamics we projected in our Short-Term Outlook, with spot prices now reflecting the evolving balance between supply and demand.”

The spot market gained momentum in 2024, with over 60 contracts signed—mostly below firm price averages—and 40 million cubic meters traded, particularly in the Northeast region. Transactions were concentrated in the last week of each month, accounting for 41% of total sales.

“In recent years, the maturation of Brazil's natural gas market has expanded contracting alternatives, with the spot market emerging as one of the most significant developments,” said Toro. In 2024, LDCs were already highly contracted in the short to medium term.

With stagnant LDC demand limiting opportunities for new firm contracts and industrial consumers migrating to the free market, a shift in Gas Supply Agreement (GSA) dynamics became evident. These trends collectively laid the foundation for the rise of the spot market in Brazil.

Toro noted that this trend was driven by greater supply diversity, new trading platforms, and the ability of companies to use the gap between ToP and Daily Contracted Quantity (DCQ) clauses to introduce spot volumes without penalties. Four LDCs—Copergás, Cegás, Bahiagás, and SCGás—accounted for over 95% of spot volumes signed in 2024.

The report finds that as Petrobras adjusts its pricing formulas, moving from 11.7% to as low as 10% of Brent for volumes above ToP, the price gap with the spot market is narrowing. However, spot prices remain attractive enough to challenge the status quo, especially in the context of global Brent volatility and mounting competitive pressure from new suppliers.

“With Petrobras still commanding 70% of LDC supply, competitors are increasingly turning to the spot market as a new commercial model, offering pricing incentives and bringing fresh liquidity into the sector,” said Toro. “If current dynamics persist, 2025 could mark the beginning of a structural shift in how Brazilian LDCs manage their portfolio.”