U.S. liquefied natural gas exporter Cheniere Energy has signed a 22-year supply agreement with Petrobras, extending the role of American LNG in Brazil’s energy system as buyers seek greater protection from volatile spot markets.
Under the agreement, Petrobras will purchase approximately 0.8 million metric tons of LNG annually from Cheniere Marketing.
The cargoes will be supplied on a free-on-board basis, meaning Petrobras takes responsibility for the LNG at the export terminal.
The duration of the agreement is particularly important.
Long-term LNG contracts provide buyers with greater supply visibility while giving exporters predictable contracted revenue that can support financing and investment in additional liquefaction capacity.
Petrobras has been seeking additional long-term LNG arrangements with U.S. suppliers as it works to reduce its exposure to volatile spot prices and maintain flexibility in Brazil’s gas and electricity markets.
Brazil’s LNG demand can fluctuate significantly because the country relies heavily on hydroelectric generation. During periods of weaker rainfall and lower reservoir levels, gas-fired generation can become more important, increasing the need for imported LNG.
For Cheniere, the Petrobras agreement adds another long-duration customer to its contract portfolio.
Earlier this year, Cheniere reached a separate long-term agreement with Taiwan’s CPC covering as much as 1.2 million tonnes per year through 2050.
Cheniere Chief Executive Jack Fusco said the Petrobras contract provides additional commercial support and fixed-fee cash-flow visibility for potential brownfield expansion.
The agreement comes as U.S. LNG has assumed greater strategic importance in global energy markets amid disruptions to traditional supply routes and competition between European, Asian and Latin American buyers.
For investors, the next issue is whether Cheniere converts its expanding contract base into additional liquefaction capacity.
The Petrobras agreement strengthens the commercial foundation for that expansion while giving Brazil another long-term source of flexible LNG supply.
