Reducing the dependence on oil
Ildo Sauer, Gas and Energy Director, Petrobras
Brazil’s energy sector is following the worldwide tendency towards greater diversification of primary energy sources and the increased use of natural gas and biofuels. There are several reasons for this change. The most important are the environmental restrictions that are gradually being adopted in the world’s principal energy-consuming markets and the need to reduce the dependence on oil, set against a scenario of accelerated depletion in oil reserves and escalating prices.
The share of gas in Brazilian primary energy consumption has more than doubled in a short period, increasing from 4.1% in 1999 to 8.9% in 2004, and this share is forecast to rise to 12% by 2010.
Over the past two decades, the world gas industry has experienced a structural and regulatory transformation. These changes have altered the strategic behaviour of gas firms, with an intensification of competition, the search for diversification (especially in the case of power generation) and the internationalisation of industry activities. Together, these changes have radically changed the economic environment and the level of competition in the industry.
Brazil’s gas industry is characterised by its late development, although in recent years, internal supply imports and demand have grown significantly — the growth trajectory of recent years exceeds that of countries with more mature markets, such as Spain, Argentina, the UK and the USa. And the outlook is positive for continued growth over the next few years, particularly when set against the investment plans already announced in Brazil.
The country has a small transportation network concentrated near the coast. The distribution network is concentrated in the major consumption centres. Domestic gas sources are largely offshore in the Campos basin and Bolivia provides imports. Given the degree of gas penetration in the country’s primary energy consumption, the industry is poorly developed when compared with other countries. The industry requires heavy investment in expanding the transport and distribution (T&D) networks, as well as in diversifying and increasing its supplies.b Such investments are necessary for realising the industry’s enormous potential.
Another key industry highlight is the changing profile of gas supply. A large part of the gas produced domestically to date has been associated with oil production. The latter diluting or even totally absorbing the costs of exploiting the gas. In most cases, gas production was feasible only in conjunction with oil production activities. However, the country’s latest gas finds are non-associatedc. Thus, an exclusively dedicated structured must be developed to produce this gas — translating into a significant rise in production costs. This is more significant when analysed against the high costs associated with the market for exploration and production (E&P) sector equipment. In recent years, the leasing costs of drilling rigs and E&P equipment have been climbing in parallel with escalating oil prices. This directly affects endconsumer prices.
In a world of primary energy consumption diversification, of greater environmental restrictions and the reduced dependence on oil, Brazil has been seeking to develop alternative energy sources – principally natural gas and biofuels. The gas industry holds enormous potential for Brazil, although there is still a long way to goe before it reaches maturity and major investment is required.
World Energy in 2006. copyright © 2006, World Energy Council. p.29-31 (adapted)
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