Brazil - Samba Energy

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 |  Includes: EWZ, PBR
by: Euan Mearns
  • In Brazil (2013), 29% of all energy consumed and 69% of electricity consumed came from hydroelectric power. Biofuel and other renewables contributed a further 10% to renewable energy consumption bringing the renewables total to 39% making Brazil one of the world leaders in renewable energy.
  • Since 1965, energy consumption has always run slightly ahead of energy production making Brazil a net importer of energy – oil, gas and coal. The aspiration to become an oil exporting nation suffered a set back in 2012 and 2013 with oil production falling and consumption rising. Energy independence still seems a way off.
  • Brazil’s energy consumption has proceeded in lock step with indigenous energy production which together have provided the engine for economic and population growth. Herein lies a risk to the economy. Should Brazil fail to grow energy production in future the economy may either stagnate or the country will have to import more energy placing trade balance and currency at risk.

[The post is written in a style where the Figure captions are an integral part of the text. Data sources are detailed at the end of the post. I intended to have this post on Brazil written in time for the start of the World Cup. Better late than never. ]

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Figure 1 Brazil is a significant oil producer with 2.1 million barrels per day (mbpd) in 2013, but for such a large country with vast off shore areas this is not an unduly large amount. It is one of the few countries in the world where liquid biofuel production is significant and stood at 317,000 bpd in 2013. In 2006, the discovery of vast oil resources in the sub-salt strata of the Santos Basin generated huge excitement. But ultra deep water and sub-salt setting has created enormous technical challenges that translate to high costs and the new play has yet to deliver to expectations.

Gas production in Brazil is low compared with oil, which is unusual since the two normally go hand in hand. It is possible that gas is being flared. Brazil has very little indigenous coal production.

Brazil has two nuclear reactors at a site called Angra with a third under construction. At present, nuclear provides an insignificant 1% of primary energy.

Hydroelectric power is massive in Brazil and capacity has grown steadily since 1965. However, in 2012 and 2013, hydro production was also down owing to late and light rains that caused somewhat of a national emergency. No doubt some may wish to attribute this to climate change but there seems little reason to not attribute this to natural cyclical variability in climatic patterns. If the reservoirs are dry in a decade’s time, I may have to eat my words.

The combined impacts of reduced oil and hydro production resulted in Brazil sucking in more oil, gas and coal imports (Figure 4) and this had a knock on adverse impact on the country’s trade balance (Figures 9 & 10).

Figure 2 The raw power of the Itaipu hydroelectric dam in Brazil. Image from Rasheeds World.

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Figure 3 The energy consumption profile in Brazil looks similar to the production profile (Figure 1). But sharp eyes will spot that the consumption is running slightly ahead of production resulting in energy imports as shown in Figure 4.

As we will see in this post and have seen in a number of earlier posts (link list at the end of this article), economic growth is dependent upon energy consumption, especially in developing nations. In maintaining a dynamic equilibrium between indigenous energy production and consumption, Brazil has allowed indigenous energy production to control the pace of economic development. This is a prudent course to follow but is radically less ambitious than the courses followed by Japan, S Korea and Germany that have forced economic expansion with imported energy paid for by exporting manufactured goods.

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Figure 4 Brazil imports oil, gas and coal. For the time being, ambitions to become an oil exporter have been dashed by declining production and rising consumption. Petrobras (NYSE:PBR) are a world class semi-national oil company, but they may have met a major challenge to produce the ultra deep water, sub-salt fields though sub-salt production passed 500,000 bpd in June this year. But with total production of over 2 million bpd, and declines likely of the order 10%, Brazil will need to bring on over 200,000 bpd per year to just maintain production at current levels.

Energy imports comprise about 17% of total energy consumed and Brazil’s energy budget remains pegged to indigenous supplies.

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Figure 5 Electricity generation is dominated by hydroelectric power supplemented by coal and gas. Transportation is dominated by oil significantly supplemented by biofuel (sugar cane ethanol). Unlike North European and North American countries, Brazil probably has little need for space heating where natural gas plays a major role in cold climates. But it probably has a major need for air conditioning in commerce, industry and wealthy citizens and this burden will fall to electricity that appears to account for about 50% of national energy consumption.

Electricity

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Figure 6 The dominance of hydroelectric power in Brazil’s electricity generation is plane to see although the proportion of electricity from renewable sources has been declining since the 1990′s. Conventional thermal means coal+gas+nuclear generation. The other renewable category is the residual left after deducting solar and wind from the renewable generation reported by BP. It may comprise geothermal and biomass (timber). If Brazil’s economic growth is to continue based on indigenous energy production then they are either going to have to expand hydroelectric power, discover more gas or build more nuclear power stations. Or perhaps do all three.

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Figure 7 79% of electricity generation in Brazil comes from renewable sources. Hydro dominates but other renewables – presumably biomass – make a significant contribution. Brazil has insignificant solar and wind generation. Presumably the government has decided they have better renewables options else where.

Population, economy and energy

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Figure 8 Since 1970, Brazil’s population has doubled and now stands at 200 million. There are definite signs that the rate of population growth is slowing. In the same time frame, GDP (constant $2005) has more than quadrupled. Population growth is one factor underpinning GDP growth.

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Figure 9 Brazil has enjoyed strong growth in bilateral trade that has over time fluctuated between surplus and deficit. The balance since 1970 is a manageable cumulative deficit of $398 billion, 35% of 2012 GDP.

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Figure 10 The cyclical nature of Brazil’s trade balance is clearly influenced by the energy balance. Herein lies a significant risk for the Brazilian economy. Since economic growth is based upon growth in indigenous energy supplies, should the country fail to continue to grow its energy base then the only alternative will be to import increasing amounts of energy to the detriment of trade balance and currency. Brazil either needs to work vigorously to expand energy production or devise a means of converting more energy consumption to exports. I dare say that hosting the World Cup may in the short term distort the trade figures.

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Figure 11 Developing countries need energy to produce GDP and growth in energy to provide GDP growth. Brazil is no exception. Note how per capita energy consumption has grown more rapidly than per capita GDP (Figure 12).

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Figure 12 Cross plotting the data from Figure 11 shows the clear connection between GDP and energy consumption. Somewhat worryingly for Brazil, cheap energy in 1970 produced over $6000 per capita in GDP per toe consumed while in 2012 with expensive energy the figure had fallen to below $4000. I suspect the underlying cause is larger numbers of people having access to energy for comfort, security and leisure purposes that does not gear into producing wealth. GNI PPP data shown in Figure 13 provide a somewhat modified picture.

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Figure 13 Summary plot of the 14 countries I have looked at in this series so far plotting similar data as in Figure 12 but this time using GNI PPP data from the World Bank in international $, money of the day. Each data set is a time series beginning in 1985 (bottom) and ending in 2012. Click on chart to get a large exploded view. The data for Brazil lies on a very similar trend to Egypt, Algeria and Turkey which are all developing nations that should be viewed as succeeding. A major problem faced by Brazil, and all of these countries, is the unequal participation of the population in creating and enjoying the fruits of economic activity. Note the total failure of Nigeria.

On a per capita basis, Brazil is not yet wealthy and, like China, economic strength comes from the large population. Note how China uses significantly more energy to produce the equivalent GNI. This in part may be due to geography; energy intensive infrastructure projects; energy intensive industries and poor energy efficiency, especially in power generation.

Data sources

[1] All of the energy statistics come from the BP: Statistical Review of World Energy 2014

Economic and population statistics are drawn from the United Nations and World Bank:

[2] UN: National Accounts Main Aggregates Database

[3] The World Bank