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Drought Forcing Brazil To Turn To Gas

Drought Forcing Brazil To Turn To Gas

Brazil is dealing with one of its worst droughts in years, causing the city of Sao Paulo to suffer through rolling blackouts.

Blistering heat and scant rainfall have depleted reserves at Brazil’s hydroelectric plants, leaving power generation at precariously low levels. On January 19, Brazil’s national grid operator ONS cut power to several major Brazilian cities, including Sao Paulo and Rio de Janeiro. Commuters on the subway in Sao Paulo even had to disembark from a train and walk along the rails after power to parts of the subway system went out.

A failure in transmission equipment was in part to blame, but the multiyear drought is the bigger underlying cause. Water levels at the Cantareira system, a massive reservoir that provides water to more than 20 million people in and around Sao Paulo, are at just 5.8 percent of its capacity. Brazil sources about 71 percent of its electricity from hydroelectric plants, so a drought not only threatens the agricultural sector – which is a critical part of Brazil’s economy – but it also threatens to cut off energy supplies to Brazil’s most important economic centers. Related: Corruption Scandal Threatens Brazilian Oil Developments

More blackouts are expected if the drought doesn’t subside. And that could push Brazil into a recession. Vicente Andreu, president of Brazil’s Water Regulatory Agency, said in October that the residents of Sao Paulo should prepare for a “collapse like we have never seen before” if water levels don’t recover.

To make up for the power shortfall, utilities have to burn more natural gas, which is much more expensive in Brazil. The drought, and subsequent increase in demand for natural gas, is expected to push up retail and commercial electricity bills by as much as 30 percent this year.

Scientists have linked the shortage in rainfall to deforestation in the Amazon, which has led to higher temperatures and lower precipitation across much of Brazil. Ironically, much of the deforestation is driven by the agricultural sector, which is now also suffering under the extensive drought.

Brazil is planning to build more coal and natural gas-fired power generation to replace its increasingly unreliable hydropower. This turns out to be another flash of irony – the world’s greenest industrial economy is set to rely upon more fossil fuels, and the resulting greenhouse gas emissions will contribute to climate change, which is expected to worsen severe droughts hitting Brazil.

Nevertheless, the government is pushing forward. In November, Brazil awarded its first contracts to coal and natural gas generation in more than three years. The contracts will lead to the construction of more than 4,000 megawatts of thermal (coal and natural gas) electric capacity. “Thermal energy is necessary to bring security to the Brazilian energy system and diversify our mix,” Jose Carlos de Miranda Farias, a director at Brazil’s energy research agency, said after the contracts were issued in November 2014. “Thermal plants are able to instantly generate what other sources failed to generate.”

Related: Here's A Big Casualty Of The Oil Price Rout

Brazil consumed about 1.3 trillion cubic feet of natural gas in 2013, a little less than half of which was imported. But both production and consumption are rising quickly. Demand is expected to rise by another 30 percent by the end of the decade, a figure that could balloon if the drought persists. Brazil has its hopes pinned on associated gas produced from the pre-salt, a vast oil and gas basin located offshore under a thick layer of salt.

Rather than resorting to building more capacity, an easier solution would be to implement and enforce efficiency measures. “The problems occurred because the [federal] government did nothing to avoid this situation,” Mario Veiga, the president of an energy consulting firm in Rio de Janeiro, told the Wall Street Journal in an interview. The government has held down electricity prices in order to fight inflation, but that has encouraged wasteful consumption. It also hasn’t tried to convince consumers to use less water, and cities like Sao Paulo are now running into water shortages as well.

But finger pointing at the highest levels suggest Brazil’s top political officials are afraid of taking unpopular conservation measures. Brazil could see more blackouts as a result.

By Nick Cunningham of Oilprice.com

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