Thought leadership from our experts

From the lungs of the planet: are we reducing our carbon footprint?

About 60% of the Amazon are located in Brazil, a country with a 7,491 Kilometers coastline (or roughly 4,654 Miles) and a population which exceeds 200 Million in need of an increasing level of quality of life, which will naturally require power in addition to the current c. 158Million kW power which is generated in the country.

Historically, most power in Brazil comes from hydro power plants. Even though today hydro still supplies 60% of Brazil's power, that started to change in the late 1990s and early 2000s with privatisation of Brazilian once state-owned generation and distribution companies and power shortage which drove Brazilians, about 15 years ago, into extreme energy savings measures to avoid power rationing.

In the meantime other sources of energy, including thermal, wind and solar have developed (even though much needed transmission lines have been delayed) and today thermal supplies 26.14%, wind supplies 7.91% and solar supplies 0.65% of Brazil's power. If that seems promising, one might want to look at what is under construction in Brazil: 227 projects, 130 of which are wind farms and 27 thermal plants which together will generate about 61% of the additional 9.5Million kW to be generated in Brazil, on top of planned, but not yet under construction, 8.5Million kW power generation projects, about 62% of which again will be wind and thermal plants.

Hydro will still be important in Brazil's power matrix in the near future, with a share of circa 16% of the new power projects under construction (split between large and small power plants) and 28% of future projects, which are still not under construction yet.

Solar is promising for the future, with a 7.8% of power generation in projects under construction and 10.5% in future projects.

And before anyone asks where nuclear is, Brazil has one project under construction in that field and the expectation is that nuclear will generate about 14% of the additional 9.5Million kW new power and that means 1.3Million kW.

About 15 years ago Brazil also reestablished a sugar-cane fuel program which now powers cars which, as a standard, are ethanol-petrol hybrid.

The first initiative to have gas, as a transition element from other sources of energy, failed partly as a result of Bolivia's nationalization of the gas and oil industry in 2006.Brazilian thermal projects were adversely impacted then and that created a disincentive for businesses to convert from hydroelectricity to gas power. And if Brazil suffered from Bolivia's nationalisation of gas (more than oil) back then, Argentina probably suffered way more, with their high dependence at the time of gas for businesses and homes (which adversely impacted operation of a particular thermal plant in Brazil, strategically built close to the border with Argentina, meant to use gas from Argentina, which became scarcer with the Bolivia crisis starting in 2006).

Shortly after privatisation of gas in Bolivia in 2006, and this explains the earlier reference to Brazil's massive coastline, Brazil announced finding significant offshore oil reserves (and Petrobras, Brazil's state-owned oil company, disclosed proven reserves of 12 Billion BOE at the end of 2017 and 299 Billion cubic meters of natural gas also at the end of 2017 and other players' numbers would be in addition to Petrobras' disclosed figures). While that was and still is encouraging, fossil fuels, as most of us know, have an expiration date on them, an expiration date which keeps changing.

In any event, Brazil, with hydro, and Argentina, with gas, learned from experience lessons which are valid for any country: not to rely on one source of energy too much!

Thermal plants, in Brazil, are not 100% gas-powered. In fact, biomass is increasingly important and currently accounts for a supply of around 14.6Million kW, 11Million kW of which are sugar-cane originated, out of the 41Million kW generated by thermal plants there.

Bottlenecks for an optimum development of an enhanced quality of life for Brazilians to be facilitated by reliable energy revolve around three major concerns: (a) transmission, (b) transportation of gas and (c) Brazil's complex tax (and customs) system where some States have a strong say and have taken action more than once to try to change prior agreements with other States, as seen in the importation of vessels for the oil and gas industry in 2001, 2007, 2018...

Transmission requires investments in lines and equipment which have not been made historically, among other issues, which also include concerns about a sort of eminent domain.

Concerns about transportation of gas are partly related to a close to a monopoly situation in the inter-state transportation of gas which in practice requires a change of a national statute by the Federal Congress (in 2018, a general elections year) on the motion of a Federal Executive which is headed by a president who took over after impeachment of the previous president and also who is facing criminal charges of corruption. Several members of the Federal Congress also face serious allegations of wrongdoing and some (including the former Speaker) have even been arrested over corruption which involved the misuse of Petrobras in the already well known Car Wash scandal.

Brazil's complex tax (and custom) system is definitely not for the faint of heart. In addition to needed changes of national statutes for Brazil's tax (and custom) system to improve, some (or maybe many) states in Brazil have been struggling to pay their bills, including pensions to pensioners and salaries to current civil servants. By no means State legislators, in a general elections year, will be willing to displease voters by passing unpopular legislation at the State level which could deprive their States of essential revenue.

And while Brazilians have important voting decisions to make in 2018, the continuous depressed price of oil internationally make production of natural gas (from the subsalt or not) more challenging from a financial perspective. And natural gas, a transition element, as many have called it, would help Brazil contribute to more reduction in the carbon footprint, while meeting the desire of Brazilians to be more reliably powered up.