Economy & Energy
No 40: October - November 2003 
ISSN 1518-2932

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Brazilian  Energy  Analysis  - 1970 to 2002 period

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BRAZILIAN ENERGY ANALYSIS - 1970 to 2002 period

 

General Considerations

The energy that drives industry, transport, commerce and other economic sectors in the country is named Final Consumption in the National Energy Balance. In order to reach the point of consumption this energy is transported through gas pipelines, transmission lines, highways, railroads, etc., processes that imply loss of energy. On the other hand, energy extracted from nature is not in the most adequate form for final use and in most cases needs to undergo a transformation process (refineries that transform petroleum into diesel oil, gasoline, etc., hydroelectric power plants that use the mechanical energy of water to produce electric energy, charcoal plants that transform wood into charcoal, etc.). These processes also imply loss of energy.

In the National Energy Balance, except for eventual statistical adjustments, the sum of the final energy consumption, the distribution and storage losses and the transformation processes losses is named Total Primary Energy Supply – TPES, also commonly called energy matrix or total energy demand.

The following figure presents the evolution of these two variables in the period 1970 to 2002, considered as the most representative of an energy balance. It can be noticed a growing distance between the two curves because losses have grown more than final consumption. The negative performances of the curves in 1981 are a result of the world economic recession caused by the increase of the international petroleum prices in 1979. In 1999 the negative results are a reflection of the economical plan of the period – Collor Plan – that blocked the financial investments of the population and entrepreneurs.

The national economic and energy policies and the external perturbations that have influenced the evolution and composition of these variables are discussed in what follows.

Total Primary Energy Supply

In 2002 the Total Primary Energy Supply was 198 million ton oil equivalent – toe, an amount 196% higher than that of 1970 and equivalent to 2% of the world demand. An important sector of the economical infrastructure, the energy industry in Brazil is responsible for 86% of the national consumption. The remaining 14% are imported – mainly petroleum and its products, mineral coal, natural gas and in a smaller quantity, electric energy,

In Brazil, about 41% of the TPES come from renewable sources, whereas in the world this rate is 14% and in the developed countries, only 6%. Of the 41% of the renewable energy, 14 percent points correspond to hydraulic generation and 27 to biomass. The additional 59% of the TPES come from fossils and other non-renewable sources. This characteristic, very peculiar to Brazil, is a result of the development of the hydroelectric generation park in the fifties and of the public policies adopted after the second petroleum crisis in 1979, aiming at reducing the consumption of fuel from this energy source and of the costs corresponding to its import at the time, responsible for almost 50% of the total imports of the country.

In this context it was also established the program of alcohol fuel production, the Proálcool. Created in 1975 by the decree number 76,593, the Proálcool had as objective to substitute part of the gasoline used in the national fleet of passenger vehicles (hydrated alcohol in vehicles with alcohol-driven engines) and to use alcohol (anhydrous alcohol) as additive to gasoline, making its combustion less pollutant. Alcohol production was 700 thousand m3 between 1970 and 1975, increased to 2.85 million m3 in 1979 and in 1997 reached 15.5 million m3, the maximum level attained. From this year on, production began to decline, reaching 12.6 million m3 at the end of 2002.

On the other end, petroleum national production had also a considerable increase due to large investments in prospecting and exploration that permitted Petrobrás to apply a pioneering technology in the world of deep-water petroleum extraction, at a depth of more than 1,000 meters. The result was a considerable increase of the measured volume – that is, ready to be technically explored – of the total national petroleum reserves, from 283 million m3 in 1979 to 2.1 billion m3 in 2002. In this period petroleum production increased from 170 thousand barrels per day to 1,500 thousand barrels per day, including liquid natural gas – LNG.

The electrical energy industry has also developed technology in the construction and operation of large hydroelectric power plants as well as in the operation of continuous current and large distance transmission systems. Its electricity generation park increased from 11 GW in 1970 to 30.2 GW in 1979 and 82.5 GW in 2002 (the installed hydraulic capacity – 65.3 GW in 2002 – represented little more than 25% of the total Brazilian potential). The extension of the transmission lines has also increased from 155 thousand kilometers in 1979 to more than 220 thousand kilometers in 2002.

The consequence of these measures can be clearly observed, either in the reduction of the dependency on external energy or in the evolution of the Brazilian energy matrix since the beginning of the eighties, as can be verified in the following figures. In the 1970s the energy external dependency had increased from 28% to about 46% of the global needs. Data of 2002 show a reduction of this level to nearly 14%. In terms of petroleum dependency, the decrease was more significant, from 85% in 1979 to 12.8% in 2002.

In the TPES structure one can notice significant transformations resulting from the adopted policies, notably in the 1979 to 1985 period.

The developing process of nations leads to the natural reduction of firewood use as energy source. In the agricultural sector the rudimentary use of firewood for drying grains and leaves, in brick works, for lime production, for domestic production of candies, etc., gradually loose importance due to urbanization and industrialization. In the residential sector, firewood is substituted by liquefied petroleum gas for cooking. In industry, specially in the food and ceramic areas, the modernization of processes results in the use of energy sources that are more efficient and less pollutants.

In Brazil, the 1970s were specially marked by large substitution of firewood by petroleum products what significantly reduced its participation in the Total Primary Energy Supply. In the beginning of the eighties the substitution process in industry was attenuated by the increase of the internal prices of fuel oil and natural gas, favoring a larger use of firewood and vegetal coal.

Sugarcane products, that include alcohol and bagasse, the latter used for heat production for the sugar- alcohol industry, increased their participation between 1975 and 1985 and became stable since then.

Hydraulic energy maintains an increasing rate of participation along the whole period. Mineral coal was driven

by the metallurgical industry at the beginning of the eighties, maintaining a constant participation from 1985 on.

Natural gas is the energy source that has had a significant development in the last years. The discovery of new national reserves, increasing its volume to 332 billion m3 in 2002 and the perspective of natural gas imports from Bolivia permit to increase its use, what will represent improvement in what concerns energy efficiency and environmental quality since natural gas is one of the cleanest fossil fuels.

In summary, the energy supply profile in Brazil was built in this way and its evolution shows a strong structural change as a function of external energy dependency reduction and the existence of still significant renewable energy sources.

Final Energy Consumption

The Final Energy Consumption in 2002 was 177,4 million toe, an amount corresponding to 89.6% of the Total Primary Energy Supply and 2.9 times higher than that of 1970. Industries, with 37%, transportation, with 27% and the residential sector, with 12%, are responsible for 76% of the final energy consumption.

In the 970s and 1980s the group of energy-intensive industries (steel, ferroalloys, aluminum, non-ferrous metals, pelletizing and paper and pulp) was the group that presented the highest rate of energy consumption, 11.4% annually (aa) and 5.6% aa, respectively, as compared to the average growth rate, namely 5.3% and 2.6% in the same periods. The group of the remaining industries consumed 6.4% of energy aa in the first period and – 0.1% in the second one. From 1990 on, the 5% aa energy consumption of both the commerce and public sectors exceeded the average final consumption (2.3% aa), that of the energy-intensive group (1.7%) and that of the remaining industries (3.4% aa).

It is noticeable that the 1980s was characterized by a strong stagnation in the industries that generate jobs, and are low in what regards capital-intensive and energy-intensive features (textile, food, footwear, electric and electronic, mechanics, civil construction, furniture, etc., included in the curve “industries (-) energ.”).

Energy consumption in the transportation sector tends to follow the final consumption path, maintaining the elasticity around 1.2 (ratio between the average growth rate of transportation energy consumption and the average rate of final energy consumption).

In the residential sector, energy consumption decreased in the considered period (- 0.2% aa) due to the fact that each toe of LPG substitutes from 7 to 10 toe of firewood because of the larger efficiency of the LPG stoves. The low elasticity of energy consumption concerning cooking relative to the family income also contributes to the low growth of energy consumption in the sector, even though electricity consumption has presented a high growth rate.

In the agriculture sector, even though there is no substitution, the use of firewood as energy source, generally rudimentary, decreases because of the rural exodus and the transfer of activities to the industrial sector.

The evolution of the sectorial energy consumption is shown in the following figure, in absolute values.


The structure of electricity among the consuming segments shows a strong concentration of it use in industry (46.2%), followed by the residential sector (22,6%). Little variations occurred in the structure in the studied period.

Among the consumers of petroleum products the most important segment is transportation (48.5%) followed

by industry (14.4%). The use structure of these products has significantly varied since 1970. In the 1970s the use in transport changed from 52.9% to 44.6% and in industry, from 23% to 26.9%. Due to the public policies that restrained the fuel oil demand (imposing quotas of industrial consumption and increasing its prices) and promoting competitive prices for national energy sources (subsidies for transport), the use of petroleum products in industry has sharply decreased from 1980 on. In 1985 the industrial uses have reached 14.1% of the final consumption of the products.

In this context, the consumption of petroleum products presents high growth rates in the 1970s and in the five first years of the Real Plan (1984 to 1998). The low economic growth and the substitution of gasoline for alcohol are the reasons for the low performance in the following periods. From 1999 on, the use of natural gas in vehicles has also contributed to reducing the consumption of petroleum products.

In what concerns biomass, the industrial (63.1%) and the residential (18.6%) sectors are the main consumers followed by transportation (13.3%), corresponding to fuel alcohol. The large increase of the industrial use of biomass in the first half of the eighties is due to vegetal coal that substituted fuel oil and sugarcane bagasse used for alcohol production. As already commented, biomass consumption in the residential and agricultural sectors has dropped due to smaller consumption of firewood.

ENERGY AND ECONOMY

In the 1970 -1980 period the Brazilian Gross Domestic Product (GDP) grew at an average rate of 8.6% aa and the consumption of some forms of energy has also grown at significant annual rates (12% aa for electricity and 8.3% aa for petroleum products). The determining factors for this result were: the continental dimensions of the country, the predominance of road transportation and also the development of the base industry and infrastructure necessary to supply the needs of many regions of the country. In spite of the high electricity and petroleum products consumption indexes, the Total Primary Energy Supply grew 5.5% aa. The TPES elasticity relative to the GDP – only 0.64 (ratio between the TPES growth rate and that of the GDP), is mainly due to the small growth of biomass (0.4% aa), constantly substituted by petroleum products – by liquefied petroleum gas in the residential sector and fuel oil in industry, besides the reduction of its use in agriculture as previously mentioned.

From 1980 on, under the influence of the recessive environment of the economy in the country due to the second raise of petroleum international prices in 1979, these rates have considerably declined and varied.

The 1980-1985 period was marked by two representative economical guidelines: (i) large expansion of the energy-intensive industries aiming at exports (steel, aluminum and ferroalloys) as a way to use the surplus of the electricity production installed capacity and to attenuate the commercial deficit and (ii) implementation of measures to restrain petroleum products consumption. In this context, the economy of the country grew at an average rate of only 1.3% aa with indexes varying between (-) 4.3% in 1981 and (+) 7.9% in 1985 and the TPES grew 2.7% aa with elasticity of 2.11 relative to the GDP. Electricity consumption grew 7.2% aa, metallurgical coal, 9.1% aa and biomass, 4.6% aa. Petroleum products consumption was reduced by (-) 2% aa.

From 1985 on, with the decrease of the petroleum international prices (from more than 40 dollars per barrel to about 15 dollars), the comparative advantages of the national energy sources have gradually lost their strength and the petroleum products have partially returned.

From 1985 to 1993 the growth pace of energy-intensive products slowed down and there was a good recovery of the Otto cycle fuels. In spite of the successive economical plans, the economy did not take off, presenting an average growth rate of 1.8% aa. The TPES grew 1.7% aa, gasoline and alcohol, 4.7% aa, electricity, 4.2% aa and biomass had a negative performance (-1.2% aa).

From 1993 to 1997, when the economy became stable, a new development cycle was established and it increased the expansion rates of the economy and of energy consumption. In this period the GDP grew 3.9% aa and the TPES grew 4.8% aa – petroleum products had an average growth rate of 7.1% aa, electricity, 5.1% aa and biomass, 2.2% aa, corresponding respectively to 1.79, 1.31 and 0.5 elasticity relative to the GDP. Residential (8.4% aa) and commercial (8.6% aa) electricity, motor gasoline (13.8% aa) and aviation kerosene (9.4%) acted as large stimulus to the high energy consumption due to a better income distribution caused by the Real Plan. In this period, exports of energy-intensive products stagnated or receded.

In 1998 and 1999, due to the successive external crises, mainly the exchange rate crisis in the Asian countries that contaminated the world economy, the Brazilian Government was forced to take measures that lead to a strong recession in the economical growth – the GDP grew only 0.13% in 1998 and 0.81% in 1999. The low performance of the economy had reflections on the energy consumption in 1999, notably in what concerns energy associated with the individual use, such as hydrated alcohol (-8.6%), motor gasoline (-6.3%), aviation kerosene (-6.3%) and residential electricity (2.4% growth). In this year the TPES grew 2%.

In 2000, after the national currency devaluation in the previous year, the economy showed signs of recovery when the GDP grew 4.36%, leveraged by the expressive performance of the Communication (15.6%), Mineral Extraction (11.5%) and Transformation Industry (4.8%) sectors. In terms of energy consumption, this was an atypical year since the TPES grew only 0.7% due to the weak performance of the energy-intensive industries as well as the continued low consumption associated with the individual use of the population.

In 2001 once again the internal economy receded as a result of the slow down of the American economy, aggravated by the terrorist assaults that contaminated the main world economies and also aggravated by the electricity supply crisis that occurred in the country. The GDP grew 1.42% and the TPES showed a slightly better performance than the previous one, namely 1.7%. Electric energy consumption in the country decreased (-6.6%) due to the contingency measures and the energy-intensive industries such as steel, aluminum and ferroalloys were strongly affected. The residential sector presented also a significant consumption retraction (-11.8%). The year 2000 ended with petroleum products consumption equal to that of the previous year and alcohol consumption retracted 7.9%.

Preliminary data show that the Brazilian economy in 2002 grew 1.52% - a result similar to that of 2001 –

                                              

when the Agriculture sector had the best performance (5.8%). As a consequence of the high exchange rate and the end of the electricity contingency measures, the exports sector resumed growth, with reflections on the TPES that grew 2.2% even under the influence of the negative performances of petroleum products (-2.3%) and residential electricity (-1.4%).

A summary of the last 5 years show that the GDP grew 1.6% aa and the TPES, 1.8% aa, having as main characteristics the resuming of energy-intensive exports and significant reduction of energy consumption corresponding to the well-being of the population.

ELASTICITY – INCOME – AVERAGES PER PERIOD

SPECIFICATION

80/70

85/80

93/85

97/93

2002/97

2002/70

TPES/GDP

0.64

2.11

0.95

1.22

1.13

0.85

TOTAL ELECTRICITY/GDP

1.39

5.64

2.38

1.31

1.07

1.67

INDUSTRIAL ELECT./GDP

1.54

5.59

1,73

0.65

1.13

1.62

PETROLEUM PRODUCTS/GDP

0.96

-1.54

1.76

1.79

0.47

0.99

BIOMASS/GDP

0.04

3.35

-0.69

0.50

0.49

0.21

STEEL MINERAL COAL/GDP

1.23

7.15

1.99

0.74

1.25

1.55

INDUSTRIAL ENERGY/GDP

0.94

1.41

1.07

1.06

1.85

1.05

OTTO CYCLE CONSUMPTION/GDP

0.44

1.82

2.66

2.09

-1.71

0.80

REGULATORY MILESTONES OF THE BRAZILIAN ENERGY SECTOR

The importance of the State in the development of the energy industry was fundamental for the development of the Brazilian economy that recorded one of the largest rates of GDP growth in the world, an average of 7.5% aa in the period 1947-1980 according to IBGE. If one considers the period 1947-1980, the GDP growth drops to 5.6% aa because the Brazilian economy stagnated in the 1980s. But the gigantic size of the energy companies, management and financial difficulties and the high debt level made it impossible to maintain the same model of institutional organization in the sector.

As a consequence, it was concluded that there was an urgent need to revise the institutional model in force - withdrawal of the State’s weight and direct responsibility regarding energy production, amplification of the participation of private capital and therefore establishment of a more competitive environment.

Besides solving these problems, restructuring the sector had the main objective of maintaining the same supplying level to the Brazilian society and prevent future generations to be penalized by the mistakes regarding planning and administration of energy companies, also reflected on prices and tariffs.

Like the rest of the country’s economy, the transformations of the Brazilian energy sector aimed at directing it according to the rules of a free competition economy, following the trends of the world economy.

In the petroleum and natural gas sector, for example, important changes have occurred. From 1995 on the activities relative to its exploration and production were made flexible while previously they were an exclusive activity of Petrobrás. Other segments – transportation, refining, import and export of petroleum and its products were also exclusive activities of Petrobrás – are opened for bidding through authorizations granted by the Petroleum National Agency, the sector’s regulation organization.

The electric sector was opened to the private initiative both by privatization of the existing companies and the creation of new undertakings. The new legislation introduced competition in the sector when it foresees biddings for hydroelectric plants and includes a previous definition of tariffs.

The same legislation establishes the independent energy producer entity and guarantees the possibility of contracting electricity supply directly from this producer.

In the present Administration, new regulations are being submitted to the contesting public process aiming at :(i) considering mechanisms that permit that income from the operation of depreciated assets may contribute to reasonable tariffs, once the benefits of competition are preserved and (ii) restoring the planning of electrical system expansion in a determining form.

All these measures aim at stimulating and attracting the private capital, allowing investors to economically calculate their investments.

Graphic Edition/Edição Gráfica:
MAK
Editoração Eletrônic
a

Revised/Revisado:
Tuesday, 11 November 2008
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