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Petrobras (PBR) Signs Gas Supply Deal With Gerdau, Naturgy

Petrobras PBR, a state-owned Brazilian oil and gas company, steel producer company, Gerdau S.A.  GGB and Spanish multinational natural gas and electrical energy utility company, Naturgy Energy Group S.A., recently signed an agreement for the supply of natural gas in the free-market environment to serve Cosigua, GGB's long steel production unit in Rio de Janeiro. This marks a pioneering move as the first gas consumer to switch to the free-market trading model under new rules approved by Rio de Janeiro's regulatory agency.

This agreement expands the ongoing partnership between PBR and GGB, initially established in 2021 and sets the stage for other GGB industrial units to potentially migrate to the free market in the future.

Strategic Importance of Proximity and Flexibility

Proximity to the Client: Maurício Tolmasquim, Petrobras’ director of Energy Transition and Sustainability, emphasized the critical role of proximity to the client to understand their demands. This new gas product portfolio, offering a diversified range of contracts, aims to provide the best supply options for business partners in a competitive and open market environment.

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Flexible Agreements: PBR is also offering more flexible agreements with various term modalities and indices, enabling customers to select portfolios that best suit their needs. This approach is designed to enhance customer satisfaction and adaptability in a dynamic market.

Enhancing Competitiveness and Sustainability

Gerdau's Strategic Vision: Flávia Souza, Gerdau Global’s director of Supplies, highlighted that this innovative partnership with PBR, facilitated by Naturgy's new contractual distribution models, allows the company to boost the competitiveness of its Cosigua unit. This unit is integral to GGB's growth plan and long-term vision in Brazil. The new partnership highlights GGB's commitment to leveraging opportunities in the free gas market, which is crucial for steel production and decarbonization efforts.

Naturgy's Role in Market Transformation: Giselia Pontes, commercial director of Naturgy, stated that the agreement is a significant step toward realizing the open gas market in Rio de Janeiro. It promotes competitiveness in the industrial market of the state and aims to reduce the gas molecule price, benefiting all market segments. Naturgy's efforts to ensure a smooth migration for GGB highlight its dedication to fostering competition and generating customer competitiveness.

Investment in Infrastructure and National Gas Supply

Petrobras' Investment Plans: PBR has planned investments in the natural gas sector to exceed $4.65 billion in the coming years. This substantial investment will support infrastructure expansion and increase the national gas supply capacity, which is vital for reducing dependence on natural gas imports.

Expanding Infrastructure: To ensure the supply of natural gas, PBR plans to invest $5 billion in projects aimed at expanding infrastructure and the national gas supply capacity. This investment will contribute to the overall reduction of import dependence and bolster the country's energy security.

Gerdau's Market Position and Prospects

Leading Steel Producer: GGB is recognized as the largest Brazilian steel producer and a leading supplier of long steel in the Americas and special steel worldwide. The company also produces flat steel and iron ore for its own consumption and has a new business division, Gerdau Next, which ventures into segments adjacent to steel.

Pioneering Charcoal Production: GGB is the world's largest producer of charcoal, maintaining over 250,000 hectares of forest base in the state of Minas Gerais. This positions the company as a key player in sustainable production practices and highlights its commitment to environmental stewardship.

Conclusion

The agreement between PBR, GGB and Naturgy represents a transformative step in the natural gas market of Rio de Janeiro. It highlights the importance of strategic partnerships, customer-centric approaches and significant investments in infrastructure to drive competitiveness and sustainability. As the first gas consumer to adopt the free-market trading model under new regulatory rules, GGB's Cosigua unit sets a precedent for other industrial units to follow. This collaboration not only enhances GGB's competitive edge but also contributes to the broader goal of energy transition and market liberalization in Brazil.

Zacks Rank and Key Picks

Currently, PBR carries a Zacks Rank #3 (Hold) and GGB holds a Zacks Rank #2 (Buy).

Investors interested in the energy sector might look at some better-ranked stocks like Archrock, Inc. AROC and Sunoco LP SUN, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is valued at $2.96 billion. The company currently pays a dividend of 66 cents per share, or 3.48%, on an annual basis.

AROC, together with its subsidiaries, works as an energy infrastructure company in the United States. The company operates under two segments — Contract Operations and Aftermarket Services.

Sunoco is valued at $5.66 billion. It is a major wholesale motor fuel distributor in the United States, distributing over 10 fuel brands through long-term contracts with more than 10,000 convenience stores, ensuring consistent cash flow.

SUN’s extensive distribution network across 40 states provides a robust and reliable source of income and the Brownsville terminal expansion should add to its revenue diversification.

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Petroleo Brasileiro S.A.- Petrobras (PBR) : Free Stock Analysis Report

Sunoco LP (SUN) : Free Stock Analysis Report

Gerdau S.A. (GGB) : Free Stock Analysis Report

Archrock, Inc. (AROC) : Free Stock Analysis Report

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