Study: Brazil must further restructure its energy sector
Brazil's energy sector needs further restructuring to meet its domestic oil needs, said Rice University's Baker Institute for Public Policy in a recent study. The report indicated that the country's domestic oil demand could rise as much as 1-4%/year during 2004-15, offsetting the country's 1 million b/d of oil production increase that resulted from energy reforms in the 1990s.
Prior to those reforms, Brazil had been a major oil importer.
Despite the progress, however, demand in the largest country in South America once again will exceed production if it simply maintains the status quo. "Without more restructuring of its energy sector, Brazil might have difficulty ensuring that sufficient investment can be made to continue to meet the rising requirement for fuel and electricity," warned Amy Jaffe, energy fellow at Baker Institute. How Brazil meets its growing energy requirements would directly impact the development of energy trade flows in the Western Hemisphere, Jaffe said.
The third largest energy consumer in the Western Hemisphere—behind the US and Canada—Brazil is the 10th largest consumer of energy worldwide.
"Brazil can afford to privatize [national oil company] Petrobras and liberalize the energy sector to guarantee the low-cost provision of fuels in future energy crises," Jaffe said. "But to implement these reforms successfully, Brazil needs to create a decentralized fiscal system that does not require a state oil and gas company as a macro-economic policy tool, and it needs to strengthen the independent regulatory authority of the state to protect the interests of Brazilian consumers."
The Baker Institute study, which consists of five research papers and two economic analysis presentations, includes a comparison of best international privatization practices in the oil industry. It also contains peer comparisons of the performance of Petróleo Brasileiro SA, which was created by the Brazilian government in 1953 to run Brazil's oil industry.
The study concluded that Brazil still needs to do six things:
- Address the future status of Petrobras.
- Improve the climate for competitive markets in natural gas and power by limiting Petrobras's role in those markets.
- Work toward a fully competitive regional gas market with broad participation and ample liquidity, allowing gas prices to be determined by supply and demand.
- Link power and natural gas prices more explicitly by contract, and eliminate price indices that hold power and gas prices in different currencies.
- Enhance the budget of regulatory agencies to ensure that they are adequately staffed and free from interference from other bodies of government.
- Improve third-party access to natural gas transmission infrastructure and information.
