* Lula launched program in November, with eye on 2026

election

* Number of Brazilians getting subsidized cooking gas has

tripled

* Middle East war has jacked up costs for cooking gas

resellers

By Fabio Teixeira and Marta Nogueira

RIO DE JANEIRO, April 6 (Reuters) - Surging energy

prices could scupper a popular Brazilian program that provides

free cooking gas to around 50 million people, fuel distributors,

resellers and analysts warned, six months ahead of a

presidential election.

President Luiz Inacio Lula da Silva launched the "People's

Gas" program as his flagship energy initiative in November as he

was gearing up to seek reelection in October.

The U.S.-Israeli war on Iran has sharply boosted liquefied

petroleum gas prices in Brazil. After an auction by state energy

firm Petrobras drew premiums of up to double its

reference prices, an angry Lula vowed last week to annul the

tender.

LPG from that auction has already been delivered to

distributors, who passed the price hike on to resellers across

Brazil, resellers told Reuters. But the rules of the People's

Gas program do not let them charge more based on higher costs,

Jose Luiz Rocha, the head of the Abragas gas resellers

association, said.

"Because the profit margin is small, the reseller ends up

losing money," said Rocha, adding that many are threatening to

quit the program, which the government had forecast would cost

around 5.1 billion reais ($991 million) this year.

Rocha said gas resellers are holding discussions with the

government over price adjustments.

Brazil's Ministry of Mines and Energy did not immediately

reply to a request for comment.

A delay in price adjustments is natural, said Marcelo

Colomer, an energy expert at Brazil's UFRJ university. But

extreme volatility since the war began has led industry players

to say the government should review its pricing methodology, he

said.

"What needs to be considered is an extraordinary mechanism,

perhaps associated with the program, to mitigate these types of

situations," said Colomer.

STRUCTURAL ISSUES

Brasilia has a history of subsidizing cooking gas for the

poorest Brazilians, but Lula's government has expanded the

program, tripling its reach to nearly a quarter of Brazilians.

In distant corners of the country, the program relies on

resellers who will soon be squeezed out, said Rocha.

A reseller who joins the program must stay in it for at

least three months, and during a contracted time a reseller

cannot refuse the program's vouchers, said Rocha.

The LPG price is not all that has risen. The cost of

trucking LPG canisters has also jumped with diesel prices, said

one source close to distributors.

One small-scale reseller in the southern state of Parana

said he can no longer cover his costs. He plans to stop

accepting vouchers, he told Reuters on condition of anonymity.

A large-scale reseller in Brazil's capital Brasilia said

that about 10% of the volume he sells is under the program.

Without a price adjustment, he said he plans to boycott it.

"The beneficiaries will complain that they are looking for

gas and can't find where to get it," said Rocha. "Then it will

become a major government problem. We want to help, but it has

to be at a fair price."

($1 = 5.1465 reais)