Brazil: The Latin American Energy Power House

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O Jogo Bonito” (The Beautiful Game) and “O mais grande do mundo” (the world’s biggest) are some words that define Brazil. They crafted the beautiful game and they built the world’s second largest hydroelectric dam.

And, while for some “futebol” (soccer) lovers Brazil may still be an enigma for the next World Cup (it just so happens will be played there next year), it does not have anything to prove when it comes to its economic might.

The combination of steady economic growth, an increasing population, and an increase in disposable income presents some challenges for Brazil as millions of citizens move into a new middle class. Take for example the automobile industry: Brazil now produces 10,000 cars every day, an estimated 6% of the world’s annual production; up from 4.2% in 2011.

Figure 1: A breakdown of energy sources in Brazil. Source: The Electric Energy National Agency.

To satisfy demand for electricity, Brazil needs to add around 6000 MW each year for a decade to its currently installed generating capacity of 121,000 MW.

Plans include the construction and development of nearly 50 more dams to generate hydroelectricity as two thirds of the hydro potential is currently untapped. Brazil also has plans to continue development of other renewable energies.

As the largest sugar cane producer in the world, Brazil also generates electricity from a sugar cane residue called bagasse burned in high-pressure boilers. All in all, Brazil expects to generate half of its new supply from hydropower, nearly one third from wind and biomass (mainly bagasse), and the rest from gas.

Earlier this week, Brazil decided to tap into its oil reserves. It auctioned 289 blocks comprising 158,000 sq. km. (the size of Ghana in Africa) of onshore and offshore territories for new exploration.  A total of 64 companies from six continents (46 foreign and 18 from Brazil) had qualified to bid for them. Initial revenue estimates from the bid by the government’s ANP (Agencia Nacional de Petroleo) were over half a billion dollars. However, during the first day of the bidding, the ANP had already collected a record $1.3bn and counting.

This trend shows Brazil’s strong oil potential and has renewed interest for investments in oil projects in the country. Especially, since output growth and projects delays have lengthened since the discovery of the Lula fields five years ago, with estimated reserves of 100bn barrels of crude oil. This is enough to supply the world’s needs for more than three years. Coincidentally, Brazil posted its lowest output of 2.3m bbl/day last March.

The fact that Brazil and the continent of Africa (where some of the largest production fields are located) were part of the same rock bed before they split supports the interest of foreign oil investors in the country.

Interestingly, Petroleos Brasileros SA (Petrobras), a former state-owned Agency, which owns nearly 90% of Brazil’s oil output, participated only as a minority stakeholder in these biddings. This may be part of Brazil’s efforts in upgrading its credibility in the world of oil exploration to keep attracting investments.

The government, however, still expects to exercise control on the output of the most productive regions as per a law approved in 2010 after the Lula field discoveries. The sale of blocks in those areas is expected to take place in November.

Brazil is also a key player in Shale Gas. It holds estimated reserves of 226 Tcf (Trillion cubic feet), 3.4% of the world’s shale gas reserve. It is also the third largest in Latin America behind Argentina and Mexico, respectively.

Right now we are seeing an explosion of data in Latin America, as markets there continue to rapidly develop and trading activities increase. ZEMA can help you to manage the growing amount of new data being generated and create an accurate snapshot of different markets.

In the meantime, while we may still have some doubts and questions as to which Brazil will show up at the Soccer World Cup next year; in terms of energy world markets the continent’s largest country is certainly onto a winner. And, yes, this is in addition of having the “Maracana” Stadium, the world’s largest soccer shrine seating over 100,000 fans.

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