| Background
Brazil is the largest country in South America and has experienced rapidly expanding oil, natural gas, and electricity markets in recent years. In 2003, Brazil�s economy suffered its worst performance in over a decade, with the country�s gross domestic product (GDP) contracting 0.2 percent. However, economy growth resumed in 2004, with GDP posting a brisk 5.1 percent rate of growth. Despite the country's poor economic performance in 2003, the da Silva administration has been consistently meeting or exceeding requirements of its $40.1 billion Stand-By Arrangement with the International Monetary Fund (IMF). In March 2005, the IMF completed its latest review of Brazil's performance under the Arrangement, stating that Brazil continued to make good progress on fulfilling the IMF criteria. 
In October 2002, Luiz Inacio Lula da Silva was elected president of Brazil, replacing Fernando Henrique Cardoso. The election marked a return of the left to power, 38 years after a military coup overthrew President Joao Goulart of the Brazilian Labor Party (PTB). During his election campaign, Mr. da Silva promised to lead campaigns against hunger (Zero Hunger Initiative) and for increased social spending in the areas of health, education and public security. To date, the new government has been successful in reforming the pension system and the tax code. Brazil is the 10th largest energy consumer in the world and the third largest in the Western Hemisphere, behind the United States and Canada. Total primary energy consumption in Brazil has increased significantly in recent years. In addition, Brazil has made great strides over the past decade in increasing its total energy production, particularly with regards to oil. Increasing domestic oil production has been a long-term goal of the Brazilian government. Oil
Brazil has the second-largest crude oil reserves in South America. Overview
According to Oil and Gas Journal (OGJ), Brazil has 10.6 billion barrels of proven oil reserves, second-largest in South America to only Venezuela. The offshore Campos and Santos Basins, located on the country�s southeast coast, contain the vast majority of Brazil�s proven reserves. In 2004, Brazil produced 1.8 million barrels per day (bbl/d) of oil, of which 80 percent was crude oil. The country�s oil production has grown by an average of 9 percent per year since 1980, and the Brazilian government has prioritized making the country a net exporter in the near term. However, with 2004 oil consumption of 2.2 million bbl/d, the country is still a net oil importer; with most imports coming from Africa and the Middle East. Sector Organization
State-owned Petrobras is the dominant player in Brazil�s oil sector, holding majority positions in up-, mid-, and downstream activities. The company held a monopoly on oil-related activities in the country until 1997, when the government opened the sector to competition and freed oil prices from state control. The principle government agency charged with monitoring the oil sector is the National Petroleum Agency (ANP), which hold responsibility for issuing exploration and production licenses and ensuring compliance with relevant regulations. Despite the opening of the sector to private actors in the late 1990s, foreign investment has been lackluster. Royal Dutch Shell is the only foreign company with oil production in the country, operating a single, relatively small field in the Campos Basin. Other companies with interests in exploration blocks include Statoil, Repsol-YPF, and Chevron. Some industry analysts have pointed to high federal and state taxes on oil production as the prime deterrent to foreign investment, but other concerns include poor exploratory drilling results and unattractive licensing terms from ANP.
Despite liberalization, Petrobras still controls over 90 percent of Brazil�s crude oil production. Exploration and Production
Petrobras controls over 95 percent of the crude oil production in Brazil. The largest oil-production region of the country is Rio de Janeiro state, which contains about 80 percent of Brazil�s total production. Most of Brazil�s crude oil production is offshore in very deep water and consists of mostly-heavy grades. 
In 2004, Petrobras expanded production at three fields: Marlim Sul, Barracuda, and Caratinga, with the three units having eventual maximum production of 400,000 bbl/d. The company also has an additional 950,000 bbl/d of crude oil capacity in the pipeline for the 2005-2008 period. Petrobras has faced difficulties developing new projects on schedule, mostly due to construction delays and shifting government regulations. Besides fields controlled by Petrobras, the only commercial oil production in Brazil is Shell�s Bijupira-Salema project in the Campos Basin. The project came on-stream in 2003 with initial production of 50,000 bbl/d. The next foreign company expected to begin oil production in Brazil is Chevron, which plans to bring the 120,000-bbl/d Frade project online in 2006-2007. China�s Sinopec has also expressed an interest in beginning exploration activities in Brazil, and the company signed an agreement with Petrobras in 2005 that would include cross-investment in oil projects in their respective countries and technology transfers. Other foreign companies have not met with such success; for example, in late 2004, Kerr-McGee announced that its exploratory well in the Tartaruga Verde area of Block BM-ES-9 did not find any oil. Licensing Rounds
Since opening up its oil industry in 1997, Brazil has held six licensing rounds. The fifth round, in August 2003, did not attract any interest from oil companies other than Petrobras. The sixth round, in August 2004, saw 154 blocks sold and raised a record amount of money in licensing fees. However, the majority of the most-promising blocks went to Petrobras. Further, most major foreign investors, such as Shell, BP, and EnCana, avoided direct operatorship of new licenses, instead buying stakes in projects operated by Petrobras. Brazil planned to hold its seventh licensing round in October 2005, and ANP announced that it would offer 1,134 areas in both frontier and established regions. 
Transpetro, a wholly owned subsidiary of Petrobras, operates Brazil�s crude oil transport network. The system consists of 4,000 miles of crude oil pipelines, coastal import terminals, and inland storage facilities. The overall structure of the network enables the movement of crude oil from coastal production facilities and import terminals to inland refineries and consumption centers.
Downstream
OGJ reported that Brazil had 1.9 million bbl/d of crude oil refining capacity spread amongst 13 refineries. Petrobras operates 11 facilities, the largest being the 350,000-bbl/d Paulinia refinery in Sao Paulo. Petrobras also controls a dominant stake in the retail products market. In February 2005, Petrobras signed an agreement with Venezuela�s state-owned Petroleos de Venezuela S.A. (PdVSA) to build a new, 150,000-250,000-bbl/d refinery in the northeastern Brazil at a cost of $2.5 billion. Ethanol
Brazil is the largest producer and exporter of ethanol in the world. Over half of all cars in the country are of the flex-fuel variety, meaning that they can run on 100 percent ethanol or an ethanol-gasoline mixture. Ethanol in Brazil comes from sugar cane, which prospers in the country�s tropical climate. Coimex Trading, a subsidiary of Brazilian conglomerate Grupo Coimex, is the largest producer of ethanol in Brazil. Natural Gas
Natural gas constitutes only a small portion of Brazil�s total energy consumption. OGJ reported that Brazil had 8.8 trillion cubic feet (Tcf) of proven natural gas reserves in 2005. The Campos and Santos Basins hold the majority of reserves, but there are also sizable reserves in the interior stretches of the country. Brazil�s consumption of natural gas has grown in the last several decades, increasing from 42 billion cubic feet (Bcf) in 1980 to 500 Bcf in 2003. However, natural gas consumption is still a small part of the country�s overall energy mix, constituting only 6 percent of total energy consumption in 2003. Despite Brazil�s sizable natural gas reserves, the country is still a net importer, producing 310 Bcf of natural gas in 2003. Imports come from Bolivia and Argentina. Sector Organization
Petrobras is the largest producer of natural gas in Brazil. The company reportedly controls over 90 percent of Brazil�s natural gas reserves. Other important actors in the sector include Sulgas and Britain�s BG. ANP has sought to attract international investment to the sector, and it announced that the seventh licensing round (see above) would emphasis blocks thought to contain commercial quantities of natural gas. 
Petrobras is also the largest wholesale supplier of natural gas. Brazilian law allows each state to maintain a monopoly on natural gas distribution in their respective territory, but many states have begun to partially privatize these distribution companies. Petrobras has bought stakes in several of these companies. Exploration and Production
Brazil�s largest natural gas production occurs in the Campos Basin in Rio de Janeiro state from offshore fields. Most onshore production occurs in Amazonas and Bahia states, though natural gas produced here is mostly for local consumption due to the lack of transportation infrastructure. However, several new transport infrastructure projects hope to facilitate increased production in these regions (see below). Pipelines
Petrobras operates Brazil�s domestic natural gas transport system. The network has over 1,550 miles of natural gas pipelines, mostly in the southeast and northeast parts of the country. In recent years, Brazil has begun many project designed to improve the natural gas transport network. The Networks Project has expanded existing distribution networks. In 2004, China�s Sinopec signed an agreement with Petrobras to construct the 730-mile Gasene pipeline linking the northeast and southeast networks. In 2005, construction began on the Gas Unificacao, or Gasun. The 1,400-mile Gasun will link Mato Grosso dul Sul, in southwest Brazil, to Maranhao, in the northeast. These pipeline projects fulfill an objective the Brazilian government announced in June 2003 to expand the country's natural gas pipeline network.
Most of Brazil�s inland natural gas reserves are unexploited due to a lack of transportation capacity. A lack of natural gas transportation infrastructure in the interior regions of the country has hindered exploration and production. In particular, Amazonas state contains considerable reserves that remain unexploited, especially the Urucu field, which contains Brazil�s largest onshore natural gas reserves. In 2005, Petrobras began construction of the Urucu pipeline that will link Urucu to Manaus, the capital of Amazonas state. The project includes construction of a new, 240-mile pipeline from Manaus to Coari, where it will interface with an existing liquefied petroleum gas (LPG) pipeline that Petrobras will convert to transport natural gas. The Urucu pipeline will parallel an existing oil pipeline and carry natural gas that is currently re-injected or flared off during oil production. Petrobras also plans to build a pipeline from Urucu to Porto Velho, capital of Rondonia state, with construction scheduled to begin in 2007. Import Pipelines
Brazil imports natural gas from Bolivia via the Gasbol pipeline linking Santa Cruz, Bolivia to Porto Alegre, Brazil, via Sao Paulo. The 2,000-mile Gasbol has a maximum capacity of 1 Bcf per day (Bcf/d), though current utilization is only some 850 million cubic feet per day (Mmcf/d). In the past, Gasbol has been a source of contention between Brazil and Bolivia due to the take-or-pay nature of the contract: Brazil must pay for the natural gas whether it actually consumes it or not, and there have been times in the past when, due to an economic downturn in Brazil, it has not been able to consume all of the contracted volumes. However, due to the resurgence of the Brazilian economy and a corresponding rise in natural gas consumption, Petrobras announced in January 2005 that it would like to increase Gasbol volumes, possibly including the construction of a second line. Gasbol also has a 170-mile, 100-Mmcf/d extension that connects to a gas-fired power plant in Cuibana. Brazil receives natural gas from Argentina via the Parana-Uruguayana pipeline. The 275-mile, 100-Mmcf/d pipeline supplies a gas-fired power plant operated by AES. There is a 380-mile extension of the pipeline under construction that will link Uruguayana to Porto Alegre. Finally, the operators of the Southern Cross pipeline, currently linking Buenos Aires to Montevideo, hold a concession to extent the pipeline to Porto Alegre. Coal
Brazil has the second-largest coal reserves in the Western Hemisphere. In 2003, Brazil had 11.1 billion short tons of recoverable coal reserves, the second largest in the Western Hemisphere, behind the United States. The country consumed 23.9 million short tons (Mmst) in 2003; however, it only produced 6.4 Mmst. Brazil�s coal reserves have high ash and sulfur contents, with low caloric values, which explains the low level of domestic production. Brazil imports coal for steel-making and uses domestic reserves for power generation, mainly from the United States and Australia. Brazil is attempting to reverse its status as a net importer of coal. According to reports, Brazil's national development bank, Banco Nacional de Desenvolvimento Economico e Social (BNDES), is developing a plan to expand the country's coal industry. BNDES hopes that the proposed program will make Brazil self-sufficient in coal by 2010 and eventually a net exporter of coal. Electricity
Brazil has the third-largest electricity sector in the Western Hemisphere. Brazil had 82.5 gigawatts of installed generating capacity in 2003, with the single largest share being hydroelectricity. In 2003, the country generated 359.2 billion kilowatthours (Bkwh) of electric power, while consuming 371.4 Bkwh. Most imported electricity comes from Argentina. Brazil�s heavy reliance on hydroelectricity has caused problems in the past, especially during years of below-average rainfall. In 2001, Brazil faced a critical electricity shortage due to insufficient rainfall and years of limited investment in the country's power sector. During the 1990s, power demand, because of a growing economy and a rising standard of living, had been consistently outstripping increments in generation capacity. In 2000, electricity consumption was about 58 percent higher than it was in 1990, while installed generation capacity grew about 32 percent during the same period. Analysts had long predicted that this demand growth, if not supported by capacity growth, had the potential to lead to shortages. In June 2001, the government implemented an energy-rationing program, which prevented rolling blackouts by requiring customers in the Northeast, Southeast and Midwest regions to reduce consumption by varied percentages, depending on customer. The rationing program ended on March 1, 2002. 
Sector Organization
The Brazilian government began to restructure the electricity sector in the mid-1990s, with the creation of a new regulatory agency, ANEEL. The government also established a national transmission grid operator, Operado Nacional do Sistema Electrica (ONS), and a wholesale power market, the Mercado Atacadista de Energia Electrica. However, privatization of the state-owned generating assets stalled. Therefore, state-owned Electrobras is the largest generating company in Brazil, controlling over half of total installed capacity. Other state-owned control most of the remaining capacity. The largest private generating company is Tractebel Energia, a subsidiary of France�s Suez. While state-owned companies still control most generating and transmission assets, distribution is largely in private hands. ONS operates the national transmission grid, which consists of two large grids in the north and southeast and numerous smaller systems in isolated regions. ONS connected the north and southeast grids in 1999, and the combined system covers over 90 percent of Brazil�s electricity market. In July 2003, Brazilian Energy Minister Dilma Rousseff revealed a new model for the country's electricity sector, with goals of ensuring reliable supply, stabilizing prices for consumers, and attracting long-term investment to the sector. This new model came into effect in March 2004. The first major component of the new electricity model was the creation of two energy trading markets: a regulated pool that buys power from generators and shares the costs between distributors under set prices and a free-market environment where distributors and generators can negotiate their own contracts. Finally, electricity pricing will be determined by pooling cheaper hydroelectricity with more expensive thermoelectric plants (natural gas). By pooling the various sources, the government hopes to reduce electricity tariffs and to ensure power is purchased from the newly constructed thermal plants. All of Brazil�s 64 distributors will now buy power at a single price generated from the new pricing formula. Initial reaction to the new energy model has been mixed. Many foreign and private companies see the new regulations as the government consolidating its hold on Brazil's electricity sector, which is currently, at least in generation, dominated by state-owned entities. In recent years, Brazil�s electricity sector has not been the most lucrative market for private investors, particularly distributors, many of which defaulted on loans in 2001-2002 and required a massive bailout from the government to stay afloat. With an estimated investment of $82 billion through 2020 just to keep supply and demand in balance, Brazil will have to rely on the private sector.
In cooperation with Paraguay, Brazil operates the Itaipu hydroelectricity complex, the largest in the world. Hydroelectricity
Brazil generated 302.9 Bkwh of hydroelectric power in 2003, or 84 percent of its total electricity supply for that year. Together with Paraguay, Brazil maintains the world's largest operational hydroelectric complex, the Itaipu facility on the Parana River, with a capacity of 12.6 GW. Many of Brazil's hydropower generating facilities are located far away from the main demand centers, resulting in high transmission and distribution losses, estimated at around 15-16 percent of total domestic demand supplied. Conventional Thermal
Conventional thermal generating sources provided only 7.4 percent of Brazil�s total electricity supply in 2003. The instability of its hydroelectric supply and a desire to exploit domestic natural gas resources led former President Cardoso to promote gas-fired turbines as a means to diversity the country�s electricity mix. As a reaction to the 2001 electricity crisis, the Cardoso administration launched the $5 billion Emergency Thermal Power Project (PPT) that called for the construction of 49 new gas-fired power plants. However, the return of adequate rainfall following the crisis forced power companies to re-consider their investments in PPT, and these companies placed most of the PPT projects on indefinite hold. Current President da Silva has indicated that his administration supports the expansion of hydropower projects, in spite of the 2002 power crisis, so the future of gas-fired generation capacity in the country is in doubt. Nuclear Power
Brazil has two nuclear power plants, the 630-megawatt (MW) Angra-1 and the 1,350-MW Angra-2. State-owned Eletronuclear, a subsidiary of Electrobras, operates both plants. A third, 1,350-MW plant, Angra-3, remains partially constructed. A lack of funds and political support have delayed completion of Angra-3, but the Brazilian government announced that it would make an ultimate decision about the plant before the end of 2005. Environment
Brazil has low energy and carbon dioxide intensities compared to the regional average. Brazil is the largest energy consumer in South America, with 8.8 quadrillion Btu of total energy consumption in 2003. While total energy consumption is high for the region, Brazil's per capita energy consumption and energy intensity are comparable to the regional average. Brazil also is the largest emitter of carbon dioxide in the region, releasing 351.5 million metric tons of carbon dioxide in 2003. Again, despite the high absolute amount of emissions, Brazil's carbon intensity is comparatively low. 
Brazil is an important player in discussions concerning international environmental issues, as the country contains over 30 percent of the world�s tropical rainforests. In addition to providing shelter to at least one tenth of the world's plant and animal species, the rainforest acts as a mechanism for absorbing carbon dioxide from the atmosphere. Click here to view the complete Brazil environmental report. |
