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Q&A: Prices, subsidies cloud Brazil’s LPG outlook

25 Jan 2022 20:39 GMT
Q&A: Prices, subsidies cloud Brazil's LPG outlook

Sao Paulo, 25 January (Argus) — Brazil's LPG market is returning to normal levels after a jump in sales during the early months of the Covid-19 pandemic. In an interview with Argus, the president of Brazil's LPG distributors' association (Sindigas), Sergio Bandeira de Mello, shared his outlook for the sector.

How did LPG demand evolve in 2021?

Sales declined in 2021 compared to 2020, which was an atypical year because demand increased. In the Brazilian case, people cooked more at home in 2020, which boosted sales of 13kg LPG cylinders. The emergency social payments in 2020 also increased demand for LPG, as household income levels increased. But sales of larger cylinders (above 13kg) were down, because industries and the services sector saw a significant decline in activity. In 2021, there was a reverse: sales of 13kg cylinders fell by 4pc as people went back to restaurants and started socializing more. But we still had solid consumption in 2021 and sales were still above pre-pandemic levels.

How does Sindigas expect consumption to evolve in 2022?

Looking at 2022, we expect stable demand compared to 2021. While some LPG distributors believe industrial consumption has already peaked, others see continued upside. Likewise, some distributors expect a small decline in residential demand, but others see demand on par with 2021. For less optimistic distributors, increased poverty and the stagnant economy will reduce demand slightly. These forecasts also factor in the fact that LPG prices have increased significantly. A 13kg cylinder cost R70 ($12.85) in 2019 and now it can be double that. Households are delaying LPG purchases because of prices.

How will social programs affect LPG sales this year?

The programs that offer gas benefits are unlikely to have a significant impact on demand. The federal program is welcome, because it recognizes the need to help low-income families purchase gas, rather than subsidize LPG prices for everyone. But because it is a cash-transfer program, people can use the benefit to purchase other items. We know that the 5.5mn families that will receive the benefit are so poor that they have many needs, other than LPG. It is very possible that people will use this money to make other purchases. Sindigas proposed that the federal government replicate the program in the Federal District, which gives R52/month that can only be used to purchase LPG. The national program is an important step and we are optimistic that the program could improve.

How are the LPG subsidies distributed elsewhere?

Other states are using different programs. Sao Paulo gives a cash payment of R50/month. In Maranhao and Ceara, the state government buys the LPG and gives vouchers to purchase a 13kg cylinder every other month. This limits price volatility for the families, but makes it harder for the states to control the cost of this program.

Several companies announced investment in LPG logistics last year. Do you expect this trend to continue in 2022?

(State-owned energy research company) Epe expects Brazil to become self-sufficient in LPG in 2030 with increased gas processing. This will be a shift and will require logistical adjustments. There were several recent terminal investments aimed at allowing imports. Companies recognize the deficiencies in logistics. Petrobras has operated with very limited unused capacity. Companies are working to import more to compete with Petrobras. We expect more investment in port terminals, since most of the natural gas processing units are located in southeastern Brazil. LPG produced by these plants will need to be transported to other regions of Brazil. The southern, center-western and northeastern regions all have LPG deficits and will need to buy LPG from center-south Brazil.

Does Sindigas expect any regulatory changes in 2022?

Regulator ANP plans to overhaul LPG regulations in the first half of the year and has promised to revisit the restrictions on LPG use. We are not concerned about allowing new areas to use LPG and are convinced that LPG can compete. If these restrictions are lifted, we see a 1-2pc increase in demand, which will not threaten LPG supplies in Brazil.