Why Brazil’s Interco Trading sees Argentina as a 'great LPG partner'

Last month saw Brazil’s Interco Trading receive the first large shipment of liquefied petroleum gas (LPG) in the Suape industrial port complex, in Pernambuco state.

The load of 12,500t was imported from Argentina through an agreement with Transportadora de Gas del Sur (TGS) and acquired by different distributors that operate in Brazil.

Having a strong presence in the country’s northeast, Interco now plans to expand its business in the south and central-west regions. 

To find out more about the expansion plans and doing business with Argentina, BNamericas speaks with executive director Nicholas Taylor (pictured, left) and commodities and trading director Marcos Paulo Ferraz (pictured, right). The interview also looks at the potential change in national oil company Petrobras’ fuel pricing policy.

BNamericas: Why does Interco see room to serve the Rio Grande do Sul and Pernambuco states with LPG from Argentina?

Ferraz: Brazil has almost 25% external dependence, especially in the northeast region. And, in the south, the two refineries [Refap and Repar] don’t have enough production to serve this region. So our strategy is to bring one more option to the local distributors. 

Taylor: Refap will go through a two-month maintenance stoppage, and we already have a second ship making trips between Bahia Blanca and Canoas [where Refap is located] to compensate for the stoppage. We plan to deliver between 6,000t and 7,000t per month by sea to help compensate for this LPG shortage. We’ll deliver directly to local distributors.

BNamericas: There’s uncertainty about the future of Petrobras' fuel pricing policy under the Lula administration. What’s your view on the proposal for the formation of regional reference prices?

Ferraz: This generates concern for the national supply, not only in terms of LPG but of derivatives in general. If they want to nationalize the price of the molecule in Brazil, we must have a guarantee that what will be imported will be competitive in some way. One of the concerns is to balance the need for supply versus the pricing of the fuels. 

Taylor: Petrobras hasn't readjusted the price of LPG for some time despite the increase in the international market. How, then, can imports be justified with a price that’s so much higher than Petrobras'?

BNamericas: Recently, an LPG distributor claimed that the fuel market in the states of Amazonas and Roraima was distorted by the privatization of Reman [now Ream] refinery in Manaus. Is this a post-privatization trend, given that Petrobras plants were not originally designed to compete with each other?

Ferraz: There’ve been some privatizations and they have been very regional in nature. The north of Brazil is regionalized in terms of price. So is RLAM [the Mataripe refinery in Bahia]. The market should be much more open and what the government should do is a state subsidy instead of using Petrobras. I’m a great defender of a state subsidy for those social classes that need it. 

But in the case of products such as gasoline and diesel, there has been competition. The large distributors have invested in increasing capacity. LPG, on the other hand, is in a moment of transition. There are announcements for the construction of new terminals and other projects in the northeast and south. And this, in fact, increases competitiveness. But for this to happen, a more open market is needed without artificial prices. 

At the end of 2022, there was a great risk of diesel supply shortage in the country. Petrobras no longer wants to be the guarantor of supply, but its pricing is very different from the international market. There’s no clarity about Petrobras' supply policy. Will it, after all, make a price to remunerate its shareholders, allowing other companies to supply the market, resulting in a mix of 30% imported and 70% domestic, for example? If so, the companies will move. 

And there are still other points that need to be studied, such as access to primary infrastructure [for fuel supply]. Today they are highly regulated and in the hands of Petrobras.

BNamericas: Analysts predict a reduction in Bolivia's gas production and export capacity. Does this create an opportunity for Argentina?

Ferraz: As for the Bolivian case we still don't know for sure because their numbers are more complex to obtain, but there are difficulties in expanding exploration investments there. Argentina, on the other hand, tends to be a big partner in LPG. 

Taylor: Petrobras has a long-term contract with [Argentina’s] Mega, a joint venture between Dow and YPF. It’s the second-largest source of LPG imported by Brazil, behind the US.

BNamericas: Is Interco planning investments to expand its LPG import capacity?

Ferraz: We don't exactly have capex projects. We’re a trading company that works in partnership with the distributors. What we do have are market expansion projects, not only in LPG, but in other special gas products, such as propellant, which are used in aerosols. This is a market that’s expanding and there are specific characteristics, especially for health care issues. In recent years, Argentine production has been directed to Brazil, which doesn’t have its own production of propellant.

BNamericas: Do you use third party ships and trucks to bring LPG to Brazil?

Taylor: We hire a fleet from foreign ship owners, or Brazilian transporters for the road transport. Argentina has certain export limitations so we hire on the spot market, sporadic contracting of ships or trucks so we don't run the risk of running out of molecule. The trend is that Argentina will have a [gas supply] surplus for the whole year in 2024. 

Ferraz: Argentina is making a major investment to bring in gas from Vaca Muerta to serve its market. The pipeline should start operations between the end of this year and the beginning of next, and this will give us more flexibility to import. 

Taylor: We’ll be able to make contracts for two or three years with prices that are lower than those on the spot market, with a guarantee of supply.

BNamericas: What other initiatives are you considering in Brazil?

Ferraz: We’re developing fertilizer projects to supply the urea market in the central-west [region]. One of the largest urea producers in the world is Russia, which is under sanctions, making it difficult to supply the market. So we’re developing this with Bolivia. 

Taylor: Natural gas in Brazil is expensive and it’s used in this process. So we’re working on urea operations with more competitive prices.