Brazil’s Energy Policy in the Shadow of the Petrobras Scandal

Brazil offers enormous opportunities in the fields of biofuels, photovoltaics and hydropower.

It is perhaps the only large country that can become energy independent with renewable energies.

1. Brazil fills an extraordinary geographical space in the southern hemisphere. The Latin American country has developed its own energy policy, which is very different from its continental neighbors.

GEOGRAPHY: In order to better understand why Brazil is following a path in its energy policy that is very different from that of other countries, we need to take a closer look at Brazil’s geography. Brazil is far away from the East Asian markets, countries like Japan, Singapore and India, and resource-rich Middle Eastern countries like Saudi Arabia, Qatar and Iran. The distance to the most important energy exporters leads to high logistics costs for energy imports to Brazil. Although Brazil has its own oil reserves off the coast in the southeast, these are not sufficient to meet domestic demand. The production costs are also very high.

PETROBRAS: In a sense, the crisis that entangled Petrobras destroyed all hopes of Brazil’s energy independence. For the foreseeable future, Brazil will not become an independent exporter of oil and gas. Geological investigations finally led to the conclusion that Brazil’s domestic hydrocarbon reserves will probably not lead to the longed-for energy independence.

Hopes were thus dashed when it was discovered that although there are oil and gas reserves near the coast of São Paulo, these are much smaller than the Brazilians had originally assumed. This of course means that Brazil is still dependent on global energy trade, albeit to a limited extent.

Oil-producing countries will continue to ship crude oil to Brazil over huge distances. Venezuela is certainly an option for the supply of crude oil. To a lesser degree, this applies to Angola. But the geographical distances are enormous.                                                                                                                                         

The entire supply chain requires increased coordination, which costs energy and money. These supplies will find their way to Brazil, a country where a considerable part of the population cannot afford diesel and gasoline without subsidies.

2. Brazil’s future lies in biomass production, especially in the use of sugar cane. Sugar cane is considered an important energy resource in Brazil.

SUGAR CANE: This explains in part why Brazil is investing so much time in finding alternative fuels to foreign oil supplies. But Brazil can solve this problem quickly: Sugarcane. Because sugar cane finds optimal growing conditions in Brazil. The growing conditions for sugar cane are as good as the conditions in Indonesia. Just as in Indonesia, biofuels make an important contribution to the energy and transport sector.             

WATER: The largest country in Latin America is ideally located directly on the equator, where temperatures do not fall below a certain minimum temperature, below a temperature threshold that would prevent plant growth.  Brazil benefits from strong solar radiation due to its proximity to the equator. Brazil also has truly gigantic water reserves, and not only from the tributaries of the Amazon.

This makes Brazil a major producer of hydroelectric power, so much so that hydropower could supply Brazil with all the electricity it will ever need. We will talk more about the difficulty of transmitting electricity over such long distances. These are huge distances. It would be unreasonable to assume that smart grid technology will achieve the same cost effects in the coming years as in Western Europe. It is much more important for Brazil to achieve a balance between supply and demand from hydropower.

HYDROPOWER: A large part of the country, especially in the northern part of Brazil, is covered by rivers that feed the Amazon and spread like a spider’s web. The use of hydropower makes sense in the south of the country, where the gradient of the landscape allows the construction of reservoirs and the generation of electricity from them. Brazil is the global leader in hydropower, at least when it comes to available capacity and potential generation capacity. In many places, water resources are not yet used for hydropower.

These enormous water resources make it possible to grow sugar cane all year round. The basis of national prosperity and the Brazilian energy industry is not oil, but water.

In the south of the country, the distances between the sugar cane growing areas and the industrial heartland of Sao Paulo and Rio are much shorter. Therefore, it is certainly sensible to expand sugar cane production in the south of Brazil.

3. Brazil has the greatest potential for hydropower generation in the world, but most of it is still untapped.

Hydropower is already being used quite extensively in Brazil, is used at any time of the day, and at any time of the year. Of course it is obvious why the surplus of electricity is not used to generate heat. The problem is that Brazil is not industrialized enough, there are simply not enough consumers of heat from industry. In the south of the country there are industrial plants around Sao Paulo, but the infrastructure would have to be improved to use that heat effectively. This fact remains, Brazil is warm all year round which underpins once again the assumption that heat cannot be used on this scale.

4. The energy surplus from Brazil’s hydropower plants cannot easily be transported to other regions, Brazil is simply too large and the geography of Brazil works against commerce and trade

TRANSPORT: The transport of that surplus energy from hydropower plants to the industrial heartland does not make a lot of sense from an economic point of view, as the electricity grid is not well developed. In the transport sector, Brazil is heavily dependent on truck transport. A nationwide rail network is still a dream of the future, and you can easily see why on the world map. The Brazilian coast is surrounded by a mountain range.

INFRASTRUCTURE: It is unfortunate that this mountain range is located exactly where Brazil’s economic heart passionately beats. The construction of roads and highways is very expensive and requires enormous sums of money. To avoid the cost of building tunnels and bridges, many roads meander along mountain slopes, but the roads are often too narrow and not particularly suitable for mass transportation.

5. From an energy point of view, the real problem Brazil has to overcome is that it has to improve transport. The problem is not really energy production. There are some solutions available for energy production, biofuels chief among them.

KEY FACTS: The huge surplus of electricity from hydroelectric power plants can only be used to a very limited extent regionally. The rest of the infrastructure is not well developed and the rail network is not suitable for mass transport. For this reason, Brazil needs its own production of hydrocarbons for transport. However, it must be remembered that oil imports are not particularly profitable and are a burden on Brazilian consumers, simply because Brazil is so isolated from the veins and arteries of the global economy. The relative distance to the world’s major energy exporters increases costs considerably.

CONNECTING THE HINTERLAND: The port infrastructure, and especially the infrastructure connecting the ports with the hinterland, is poorly developed. This hinders energy imports and leads to high costs, especially due to time delays. There are only a few large ports in Brazil that are suitable for global trade. The advantage would be that most of the economic activity takes place near the coast in the south of the country. The problem is that the energy demand in the hinterland is much lower. This means that the advantages that would result from expanding the infrastructure into the hinterland are simply not there, it is not worth it. The same could be said about the energy infrastructure in the central parts of the country.

BIOFUELS PRODUCTION: Sugarcane could be a solution for Brazil, but it would stand out as an exception by global comparison. In the United States, the cultivation and commercialization of sugarcane is not worthwhile from an energy point of view. In Brazil, sugarcane has a much better EROI (Energy-Return-on-Energy-Invested) for energy production, but is still low by comparison to other energy sources.

The establishment of an effective distribution network for biofuels is also worthwhile because many Brazilian cities are far apart. Often there are only a few settlements and lots of agriculture in between, especially in the south of the country. These are the reasons why biofuels make a lot of sense in the south of Brazil where there are few but very large urban agglomerations.

Many thanks for the shared interest in the energy world!

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