Interview on Brazil energy market

1 May 2008

Enerdata has just released the Brazil energy report with 2007 data.

Alban Kitous, economist at Enerdata in charge of energy market intelligence, unveils the latest energy market evolutions.

How is the energy sector structured in Brazil ?

First, Brazil is a large country with important energy resources:  a large hydroelectricity potential (80 GW), significant resources of oil (1600 Mt), gas (290 Gm3) and coal (12 Gt). Brazil has also the potential to grow large quantities of biomass and has engaged ambitious biofuel programs as early as the mid-70s.

Even though the energy system is open to private companies, it remains (directly or through subsidiaries) under the control of 2 large publicly-owned companies: Electrobras for the power sector (owned at 52% by the State) and Petrobras for oil and gas (owned at 54% by the State).

Despite the recent controversy on biofuels Brazil seems to support strongly their development ?

Yes indeed, Brazil has a large potential for ethanol production from sugar cane. In the 70s and because of the 1st oil shock, Brazil started its “Pro-alcohol Plan”, which was stopped at the end of the 80s. The success of the program was such that at the time of the Pro-Alcohol interruption ethanol cars represented more than 90% of the Brazilian automobile stock. However, the interruption of the State subsidies – which became too expensive- and the fact that the supply was affected by the fluctuations in the sugar price involved a decrease of the sales of this type of vehicle until 2003 (from 85% of the sales in 1985 to 6% in 2003). However, since the beginning of the years 2000 Brazil has launched a new development policy of biofuels, with in particular a program of biodiesel production and an international promotion campaign for their use. In 2007 flex-fuel vehicles (that can use ethanol and gasoline) represented 87% of the sales (75% in 2006).

Although new concerns have been raised recently on the production of such fuels (impact on the food market, real environmental efficiency, ..), Brazil defends vigorously its policy, arguing that its mode of production (from sugar cane) is safe and considers this development as a tool to alleviate its poverty.

How is the electricity mix in Brazil ?

One important feature of Brazil is the reliance of its power sector on hydroelectricity (76% of the total capacity and 84% of the electricity production in 2007).

On the one hand it ensures energy security and a low level of carbon emissions, but on the other hand there are worries on the impact of climate change on the capacity to regulate the water availability for the dams in the future Brazil intends to double the share of electricity production from nuclear by 2025 (to 4%).

What is the role of Brazil on the South America gas market ?

Brazil, which is a large actor of the gas market in South America because of its large energy market and its growing gas consumption, is entangled in the regional political difficulties concerning gas supply.

Indeed, although countries in the region seem to agree in principle on the interest of coordinated gas policies, national political priorities and social tensions hamper any easy regional cooperation. Brazil is actually competing with Argentina to get access to gas reserves in Bolivia, which has decided these last years to limit the activities on its territory of the Brazilian company Petrobras.

Although it will surely keep importing gas from Bolivia, Brazil has thus decided to increase its domestic production (which should represent more than half of its consumption in 2012) and to develop LNG reception terminals to get access to other exporting countries.

It seems that some large oil discoveries in Brazil have recently been announced, could you tell more on this?

Indeed, the national Agency Oil Agency (ANP – Agencia Nacional do Petroleo) has announced large offshore oil discoveries in December 2007 (Tupi area) and April 2008 (Carioca), both in the Santos basin. The Tupi zone would contain 5-8 Gbl, and the Carioca area up to 5 times more (33 Gbl estimated).

These major discoveries would increase Brazil’s reserves considerably (12 Gbl in 2007), and let hope for a new development of the national production.

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