Economy and Energy
Year  II - N° 8
May/June/1998

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Revised:
Sunday, 13 December 1998.

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Letter from Espirito Santo’s Energy Chamber

Responsible: Genserico Encarnação Júnior
Executive Secretary of the State Energy Chamber
eeegense@nutecnet.com.br
English Version:
Frida Eidelman
frida@password.com.br

This document unanimously approved by the members of the Espirito Santo’s Energy Chamber in an ordinary session held on March 31, 1998 aims at: analyzing the national energy situation and its repercussions in Espirito Santo, relating it mainly to the advent of a new market for natural gas in Brazil and states its perceptions on the subject and makes it known to decision-makers of the Brazilian energy sector and other competent authorities.

ENERGY IN TRANSITION

Presently the national energy sector is under transition, therefore with new definitions concerning Brazil as well as the state. It is moving from a model in which the State - obviously maintaining its prerogative of "concession power" - is the large undertaker, to another in which its role is limited to regulator and controller of the fundamentally private agents. The change originates from the financial incapacity of the state at different government levels. The move is facilitated by the predominant political philosophy (notably the privatization of activities in the sector), the advent of a larger participation of natural gas in the Brazilian energy matrix and the consequent implications of investment scarcity in the recent past. The state and enterprises are moving in order to be better situated in this new mosaic in which the national energy sector was transformed. Many states are claiming their natural gas thermoelectric plant, in a dispute similar to that concerning the siting of car factories in their lands. By trading away their position of undertaker, the government cannot ignore its major function as regulator, imposing the due order in this changing situation. With the predominant entrepreneurial point of view for making viable new electrical projects, the thermal generation will be privileged, since it requires less initial investment by installed kilowatt, it has a higher profitability rate and a smaller return time on capital employed as compared to hydraulic generation.

As to the initial studies concerning the construction of the Bolivia-Brazil gas pipeline, its viability was anchored on the industrial consumption of gas. Aiming at decreasing risks of the "take-or-pay" contractual clause (pay less without consumption), its use was directed to a new front, the thermoelectric generation. A larger guaranty of demand coincided with the possibility of crisis of electrical energy supply in the south-southeast and center-west regions of the country. Therefore, natural gas will be used in large proportions in thermoelectric generation, an activity of relatively low energy efficiency, when it could be better used for industrial consumption, cogenerating electrical energy, with better energy efficiency. The Brazilian south-southeast region has a large cogeneration potential, due to its important industrial plants, which therefore are not adequately utilized. For a generation capacity of 1,000MW, using the combined-cycle technology, 4 million cubic meters of natural gas are necessary daily, with an energy efficiency of about 50%. Therefore, for example, using 10 million cubic meters daily, 2,500 MW will be generated, bellow the cogeneration potential previously mentioned. The present surveys of the studied thermoelectric plants situate this last figure in a range between 3,500 and 8,000 MW, which would demand from 14 to 32 million cubic meters of natural gas daily, which is enormous when compared to the present Brazilian market and its perspectives. In cogeneration activities , where natural gas serves industrial process and electrical energy is generated at the same time, for the industry itself and for the electrical network, the efficiency reaches 80%. On the other hand, there is no mention , in the national electric sector planning, of the utilization of the large hydraulic potential of the Uruguay river, in its border with Argentina, the last frontier of south-southeast/center/west for this type of generation. A joint action within Mercosul should be articulated for constructing the Garabi, São Pedro and Roncador Plants, with potential above 5,000 MW. For the private initiative, the thermoelectric alternative has a much larger appeal than the hydroelectric solution due to reasons already exposed. The ideal would be to use natural gas for industrial consumption and generate electric energy via cogeneration. The "take-or-pay" clause, the energy crises and financial needs are causing the use of natural gas for direct thermoelectric generation. Nevertheless, as every rule has its exceptions, not always is the ideal possible. Where there is no economical viable potential for cogeneration, the possible is electric energy generation via thermal generation using natural gas in plants of combined cycle. This is the case of Espirito Santo. The state is situated at the end of the line of the South/Southeast/Center/West Integrated System, needing a supply of good quality and importing 80% of its electric energy needs. In this case, thermal generation using natural gas is the plausible alternative. Without large hydraulic sources, with industrial plants where the cogeneration potentials are already exploited, only conventional generation is left. Nevertheless, this does not eliminate the efforts aiming at using the limited possibilities of cogeneration still existing. Incidentally, Espirito Santo is the second cogenerator of electric energy in the country, with São Paulo in the first place. In relative terms, the state has the first place. This concerns the experience of Companhia Siderúrgica de Tubarão, using mineral coal and that of Aracruz Celulose, using biomass. In the state, the cogeneration capacity (little less than 300 MW) even surpasses the electric energy generation capacity (200 MW). By producing locally the natural gas and by linking the gas pipeline from Espirito Santo to both that from Rio de Janeiro and Bolivia, it is planned to create approximately 650 MW of generation capacity. This would lead to almost self sufficiency of the state in what concerns electric power, inverting the present dependency situation. Besides supplying the electric power local needs, dispensing supply from outside the state and therefore increasing the availability in the southeast region, connecting Espirito Santo to the gas pipeline of the country’s meridional region will have two more important purposes at the national level. In the first place, it increases substantially the guaranty of optimization of natural gas supply in the region, served jointly by the Campos, Santos and Bolivia basins, incorporating the Espirito Santo’s basin (mainly the prospects, examined in what follows). The Espirito Santo market offers firm demand, with electrical generation for an iron ores reduction plant, besides the uninterrupted demand from pelletizing plants located in its region, which can alternatively use natural gas or fuel oil. In the second place, by connecting the southeast gas pipelines to that of Espirito Santo, one is going to the direction of interconnection with the northeast network. Therefore, this is of great interest for the national integration. The Cabiúnas (RJ) - Vitoria (ES) gas pipeline, 325 km long, will be connected to Espirito Santo’s gas pipelines, 300 km long. From what was described, one can conclude that, in the medium term, the concretizing of the Cabiúnas (RJ) - Vitoria (ES) gas pipeline is highly important in the national energy context now changing, which could no be hindered by other interests , even though legitimate, which might gain a better position in the framework of national decision-making process due to political or entrepreneurial reasons. On the other hand, in Espirito Santo there are excellent possibilities regarding the offer for discovery of natural gas reserves, in the long term. PETROBRAS, by its own or in partnerships that are now in discussion, will promote exploratory investigations in the north coast of volumes around 100 billion cubic meters of gas, accounting only gas not associated with petroleum. Taking into account its average indexes of success in Brazil, that enterprise hopes to discover volumes around 30 billion cubic meters of not-associated gas. This framework, associated with the connection of Espirito Santo to the south/southeast/center/west gas pipeline network, through the construction of the Cabiúnas (RJ) - Vitória (ES) segment, adds guaranty of supply in the medium and long terms. Therefore, in the new Brazilian institutional framework which, with the flexibility of the state petroleum monopoly, can count on private capitals,it is of vital importance for the development of Espirito Santo and Brazil that both fronts - the construction of gas pipelines and the exploration of natural gas in the state - will be given priority by the decision-makers. In this sense, it is fundamental

for the government to intermediate the regulation in the indicative planning and even incentive (through the available instruments) of the activities in the national energy sector. Its absence provokes disorders that are socially not justified. The national planning must always take into account the regional and local aspects, as it is demonstrated by the example of Espirito Santo. The inclusion of the gas pipeline project in the Federal Program named Brazil in Action corroborates this rationale. The decisions taken at this transition moment, outside the rational context, besides focusing the national aspects and considering the state environment, may cause irreparable damage to some regions, by hindering the good solution of local problems which, when well solved, may contribute in a synergetic way for equating the overall situation. This letter expresses the conscience and convergence of the main governmental and entrepreneurial leaderships of Espirito Santo about this assignment, gathered at the State Energy Chamber.