Record oil prices have cast an ominous shadow on the world, as insufficient production has been unable to keep up with the roaring advancement of global oil demand. Meanwhile, Brazil has recently declared self-sufficiency in oil, made the world’s biggest oil discovery in 7 years, and has greatly diversified its energy portfolio, especially with the substantial use of biofuels. While many net importing countries debate energy security measures, Brazil has made energy self-sufficiency a growing reality. As Brazil’s changing energy situation has propelled it into the international spotlight, with various countries looking south to emulate Brazil’s example, this post seeks to give an overview of the country’s current energy situation, looking specifically at Brazil’s oil, natural gas and biofuels sectors.
To understand the relevance of Brazil’s energy situation, one must first understand the country’s resource endowments and consumption levels in comparison to the rest of Latin America and the world. Brazil is the largest country in Latin America and the fifth-largest country in the world in terms of surface area. As such, it is endowed with vast energy and natural resources, which include Latin America’s second biggest oil reserves (11.7 billion barrels) after Venezuela, as well as the region’s fourth biggest natural gas reserves (306 billion cubic meters), after Venezuela, Bolivia, and Argentina. Its vast surface area also holds powerful water resources that are harnessed to produce hydroelectricity, as well as crop lands that produce sugarcane for one of the world’s largest ethanol production.
As the world’s tenth biggest economy in GDP terms,as well as the world’s fifth most populous country, Brazil is a big energy consumer. With a population of 188.6 million, Brazil is Latin America’s largest consumer of energy, accounting for over 40 percent of the region’s primary consumption in 2004. Beyond Latin America, the magnitude of Brazil’s energy consumption makes the country the world’s 10th largest energy consumer, as well as the third largest in the Western Hemisphere, behind the United States and Canada only. Hence, Brazilian energy consumption levels are as substantial as its vast natural resources and surface area.
Given Brazil’s energy resources and consumption levels relative to the region and the world, what is the composition of Brazil’s current energy matrix? A review of the country’s energy mix in the past 20 years reveals three significant patterns. The first pattern is the substantial share of biomass in the country’s energy matrix. From 1980 to 2004 biomass has accounted for an average of 31 percent of Brazil’s energy matrix, varying from 34 percent in 1980 to 27 percent in 2004. According the International Energy Agency (IEA), biomass will continue to maintain its significant share of Brazil’s energy matrix in the next twenty years.
The second noteworthy pattern in the Brazilian energy mix is the increased use of natural gas over the years. While natural gas consumption accounted for 1 percent of the Brazilian energy matrix in 1980, it comprised a significant 8 percent of Brazil’s total energy use by 2004. The IEA predicts that natural gas consumption will continue to rise in the next 20 years, accounting for 12 percent of the Brazilian energy mix by 2030.
As biomass and natural gas have gained ground, oil consumption has concurrently declined over the years. While oil accounted for 50 percent of Brazil’s energy use in 1980, by 2004 oil use had declined by 8 percentage points to 42 percent. This third pattern is of significance as it demonstrates how energy diversification policies in Brazil have allowed the country to progressively become less dependent on oil. Even though oil is expected to still maintain its considerable share of Brazilian total energy use, other sources of energy are continuing to offset traditional oil consumption patterns.
What have been the government policies behind the evolution of Brazil’s energy consumption patterns? As noted above, biomass has made a significant contribution to the country’s energy matrix, accounting for approximately a third of Brazil’s energy use over time. As the world’s second largest producer and leading exporter of ethanol, Brazil’s ethanol production has significantly contributed to the expansion of biomass in the Brazilian energy matrix. How has biomass come to occupy such a significant share of the country’s energy use?
While countries today are analyzing the feasibility of biofuel production programs, Brazil launched its first ethanol program over 30 years ago in 1975. The National Alcohol Program, ProAlcool, began as a response to soaring oil prices and a crisis in the international sugar market. While international sugar prices were at an all time low, the first oil crisis caused oil prices to rise by 328 percent in less than two years, from US$ 2.91 in September 1973 to US$ 12.45 in March 1975. This combination of events incentivized the government to search for new fuel sources as well as for a renewed stimulus for its large sugar production. From 1975 to 1979, the Brazilian government provided funds to help construct distilleries near existing sugarcane mills, and embarked on a massive campaign to promote synergies between sugarcane growers and ethanol producers.
Although ProAlcool began in the mid 1970s, it would only gain momentum after the second oil crisis, in 1979, when Brazil’s continued vulnerability to oil shocks became exposed. With a strong political will to enhance the national program, the government designed several incentives to lure sugarcane producers, car manufactures, distillers and others to adjust their operations to produce ethanol. With such incentives, Brazil was able to develop a substantial ethanol industry by the 1980s. It is reported that in 1987 ethanol production in Brazil had increased by 290 percent from the late 1970s, producing 15 billion liters in 1987. Thanks to high subsidies and other government incentives, 92 percent of new car sales between 1983 and 1988 were alcohol-fueled.
Yet, the ethanol boom in Brazil experienced an external shock when the main factors that originally incentivized the government to invest in ethanol production changed. While declining oil prices in the mid-1980s made ethanol production less economically viable, rising sugar prices in 1989 led sugarcane growers to divert crops to sugar exports. As declining ethanol production was unable to satisfy ongoing demand generated by the spread of alcohol-fueled vehicles, consumers lost confidence in the reliance of ethanol, which greatly discredited ProAlcool. By the end of the 1990s, ethanol-fueled vehicles accounted for less than 1 percent of Brazil’s total car sales.
Ethanol became once again an attractive option for both producers and consumers in 2003, when car manufacturers introduced the “flex-fuel” vehicle. This new technology allowed consumers to switch from ethanol to gasoline, or vice-versa, in accordance with fuel prices and preferences. This flexibility allowed consumers to regain confidence in ethanol, which became an even more attractive fuel with record oil prices. Hence, ethanol production in Brazil regained impetus in 2003, and has now reached approximately 18 million liters in 2006-2007. Flex-fuel vehicles have become such an attractive option for consumers in Brazil, that it now comprises 86 percent of the Brazilian auto market, and 91 percent of all passenger vehicles in the country.
While Brazil has experienced a growth in ethanol production and consumption, the country has also experienced a rise in natural gas demand. As natural gas is mainly used in Brazil’s industrial sector, high oil prices have led industries to demand more natural gas as a substitute for oil. However, unlike ethanol, much of the demand for natural gas is supplied by imports; natural gas production has grown slowly in recent years due to an underdeveloped domestic transportation infrastructure that connects regions to the coast but not to one another, as well as low domestic prices that do not appeal to producers. Low domestic prices, however, are part of an explicit government policy to diversify energy sources. Hence, as low domestic natural gas prices preclude domestic producers from producing natural gas to their full potential, Brazil has increasingly relied on imports from Bolivia and Argentina.
Of the two countries from which Brazil imports natural gas, Bolivian imports represent one of Brazil’s current problems in terms of energy self-sufficiency. Bolivian natural gas comprises a considerable share of Brazilian imports, accounting for 42 percent as of 2006. Yet, on May 1, 2006, Bolivia declared its hydrocarbon nationalization decree, which established the transfer of ownership and possession of 100 percent of oil and gas production in the country to the state-owned company Yacimientos Petroliferos Fiscales de Bolivia (YPFB). This decree affected Brazilian investments in the country, as following the nationalization, Bolivian troops proceeded to seize gas fields and installations, including two Brazilian-owned refineries and their associated downstream operations. Ongoing talks between the two countries have revolved around prices of natural gas imports, which Bolivia seeks to increase by 80 percent, and compensation for Brazilian investments in the country.
This decree has created a conundrum for Brazil’s policy of importing natural gas, as much of Bolivian gas supplies Brazil’s burgeoning industries in the southeast of Brazil. To reduce the country’s vulnerability, Brazil plans to accelerate the development of its domestic natural gas resources to supply its growing southeast market. At the same time, however, Brazil declared recently that it will invest between US$ 750 million and US$ 1 billion in Bolivian natural gas, stating that it is “willing to invest in Bolivia especially because of demand for natural gas in Brazil,” and thus accepts “a risk for investment in the countries like Bolivia” (sic). Hence, despite Brazilian policy to diminish its vulnerability to Bolivian gas, the necessity of supplying the country’s voracious industry has led Brazil to not only maintain its import policy, but to also invest in it. Yet, as Brazil imports 72 percent of Bolivia’s total gas production, the latter is inexorably dependent on Brazil for much of its revenue, making both countries interdependent at least in the short-run.
The increase of natural gas and biofuels in the Brazilian energy matrix may have contributed to the diminished use of oil in Brazil over the years, although such correlation cannot be demonstrated without a statistical regression analysis. As seen previously in figure 3, oil consumption has declined over the years, from comprising 50 percent of the Brazilian energy matrix in 1980 to accounting for 42 percent in 2004. As government policies allowed for greater accessibility of alternative fuels, ethanol was reported to have substituted approximately 230 billion liters of gasoline, while high oil prices have led industries in Brazil to increasingly use natural gas.
In line with Brazil’s policy of becoming more energy self-sufficient, the government has reorganized the oil sector in an effort to become less dependent on foreign sources of oil. Brazil’s oil sector has undergone profound regulatory and structural changes in the last decade. Created in 1953, Brazil’s national oil (and natural gas) company, Petrobras, had enjoyed exclusive rights to explore and produce oil and natural gas in Brazil. This situation changed in 1995 when Brazil adopted the Ninth Amendment to the Brazilian Constitution, allowing other companies to become involved in oil exploration and production. Two years later, further significant changes were adopted with the Oil Law of 1997, whereby a legal and regulatory framework for the oil industry was established, creating Brazil’s national regulator for the industry, the Agencia Nacional do Petroleo (ANP). ANP is now responsible for issuing exploration and production licenses, as well as ensuring compliance with Brazilian regulations.
Although Brazil’s national oil company competes with 50 other companies that have received exploration and production rights in Brazil, Petrobras remains the country’s dominant player in the oil sector. Although the company is no longer state-owned, it is nevertheless state-controlled, with the government retaining 55.7 percent of Petrobras’ voting shares, as shown in figure 6. Petrobras has also inherited most of the country’s exploration and production projects, controlling 95 percent of Brazil’s crude oil production and holding majority positions in up-, mid-, and downstream activities.
Despite Petrobras’ de facto monopoly of the Brazilian oil sector and the government’s significant control of the company, Petrobras has demonstrated large efficiency gains since the liberalization of the Brazilian oil sector. The company has received international recognition for its technical efficiency and expertise in deepwater offshore drilling technology and production. Petrobras’ deep-water and ultra-deep-water exploration have yielded substantial discoveries that have significantly contributed to Brazil’s growing oil reserves. Oil reserves are reported to have increased nearly eightfold from 1980 to 2005.
Recently, Petrobras’ technical expertise has allowed the company to make the world’s biggest oil field discovery in 7 years, discovering 5 to 8 billion barrels of oil in the Tupi oil field, in Brazil’s Santos basin. The magnitude of such a discovery can be better appreciated when compared to other countries’ current proven oil reserves, as the Tupi field holds the equivalent amount (or more, if greater than 5 billion barrels) of Ecuador’s proven oil reserves. The recent discovery has, therefore, substantially added to Brazil’s 11.7 billion barrels of proven oil reserves. Further substantial discoveries are expected, as Petrobras has recently announced the possible existence of an even bigger field neighboring the Tupi oil field, expected to be five times larger than the Tupi.
Concurrent with these new discoveries, Petrobras’ production has also contributed to Brazil’s oil self-sufficiency. Oil output in Brazil is reported to have nearly doubled since the 1990s, reaching 1.7 million barrels per day in 2006 and 2.1 million barrels per day in 2007. Such an increase in production is largely attributed to Petrobras, which controls over 95 percent of crude oil production in Brazil. As shown in figure 8, Brazil’s oil production and consumption levels had been narrowing over the years, and finally on April 21st, 2006 - the anniversary day of Tiradentes, the country’s independence hero – Brazilian President Luis Inacio Lula da Silva proclaimed the country’s self-sufficiency in oil, an achievement sought by the Brazilian government since the country’ reorganization of the oil sector.
Conclusion
This post has sought to explain the internal mechanisms driving Brazil’s recent accomplishments in energy self-sufficiency. Such accomplishments have been achieved due to a combination of resource endowments and government policies. However, despite Brazil’s vast resources, the country has only begun to achieve self-sufficiency after the government established policies to diversify its energy matrix. Exogenous factors such as high oil prices have certainly provided the initial impetus to launch such policies. Yet, the technological outcomes of such government policies have sustained much of the momentum. With new technology in the form of flex-fuel vehicles for Brazilian transportation, and Petrobras’ growing expertise in deepwater offshore drilling technology and production, Brazil’s dependence on foreign sources of energy has progressively diminished.
Although Brazil’s “Achilles heal” lies in its imports of natural gas from Bolivia, the country nevertheless remains in a comfortable position as Bolivia’s most important customer. This position, therefore, allows Brazil to set the tone of future negotiations while it reconsiders the Bolivian dilemma as well as its domestic natural gas potential. With new oil field discoveries led by Petrobras, the natural gas conundrum may be resolved if substantial natural gas reserves are concurrently located. New discoveries together with complications in the Bolivia-Brazil natural gas relationship may provide further political will for Brazil to invest in its domestic distribution network for natural gas, an outstanding issue in Brazil’s energy matrix.
Yet, despite the natural gas dilemma, Brazil’s energy policies have paid dividends for the country’s energy situation. As the volatility of fossil fuels have led many net importing countries to debate the best policies to achieve greater energy security, Brazil stands as the vanguard country in devising policies to achieve such goals. Hence, the Brazilian experience serves as a model not only for energy diversification efforts, but also for efficient government policies.
To understand the relevance of Brazil’s energy situation, one must first understand the country’s resource endowments and consumption levels in comparison to the rest of Latin America and the world. Brazil is the largest country in Latin America and the fifth-largest country in the world in terms of surface area. As such, it is endowed with vast energy and natural resources, which include Latin America’s second biggest oil reserves (11.7 billion barrels) after Venezuela, as well as the region’s fourth biggest natural gas reserves (306 billion cubic meters), after Venezuela, Bolivia, and Argentina. Its vast surface area also holds powerful water resources that are harnessed to produce hydroelectricity, as well as crop lands that produce sugarcane for one of the world’s largest ethanol production.
As the world’s tenth biggest economy in GDP terms,as well as the world’s fifth most populous country, Brazil is a big energy consumer. With a population of 188.6 million, Brazil is Latin America’s largest consumer of energy, accounting for over 40 percent of the region’s primary consumption in 2004. Beyond Latin America, the magnitude of Brazil’s energy consumption makes the country the world’s 10th largest energy consumer, as well as the third largest in the Western Hemisphere, behind the United States and Canada only. Hence, Brazilian energy consumption levels are as substantial as its vast natural resources and surface area.
Given Brazil’s energy resources and consumption levels relative to the region and the world, what is the composition of Brazil’s current energy matrix? A review of the country’s energy mix in the past 20 years reveals three significant patterns. The first pattern is the substantial share of biomass in the country’s energy matrix. From 1980 to 2004 biomass has accounted for an average of 31 percent of Brazil’s energy matrix, varying from 34 percent in 1980 to 27 percent in 2004. According the International Energy Agency (IEA), biomass will continue to maintain its significant share of Brazil’s energy matrix in the next twenty years.
The second noteworthy pattern in the Brazilian energy mix is the increased use of natural gas over the years. While natural gas consumption accounted for 1 percent of the Brazilian energy matrix in 1980, it comprised a significant 8 percent of Brazil’s total energy use by 2004. The IEA predicts that natural gas consumption will continue to rise in the next 20 years, accounting for 12 percent of the Brazilian energy mix by 2030.
As biomass and natural gas have gained ground, oil consumption has concurrently declined over the years. While oil accounted for 50 percent of Brazil’s energy use in 1980, by 2004 oil use had declined by 8 percentage points to 42 percent. This third pattern is of significance as it demonstrates how energy diversification policies in Brazil have allowed the country to progressively become less dependent on oil. Even though oil is expected to still maintain its considerable share of Brazilian total energy use, other sources of energy are continuing to offset traditional oil consumption patterns.
What have been the government policies behind the evolution of Brazil’s energy consumption patterns? As noted above, biomass has made a significant contribution to the country’s energy matrix, accounting for approximately a third of Brazil’s energy use over time. As the world’s second largest producer and leading exporter of ethanol, Brazil’s ethanol production has significantly contributed to the expansion of biomass in the Brazilian energy matrix. How has biomass come to occupy such a significant share of the country’s energy use?
While countries today are analyzing the feasibility of biofuel production programs, Brazil launched its first ethanol program over 30 years ago in 1975. The National Alcohol Program, ProAlcool, began as a response to soaring oil prices and a crisis in the international sugar market. While international sugar prices were at an all time low, the first oil crisis caused oil prices to rise by 328 percent in less than two years, from US$ 2.91 in September 1973 to US$ 12.45 in March 1975. This combination of events incentivized the government to search for new fuel sources as well as for a renewed stimulus for its large sugar production. From 1975 to 1979, the Brazilian government provided funds to help construct distilleries near existing sugarcane mills, and embarked on a massive campaign to promote synergies between sugarcane growers and ethanol producers.
Although ProAlcool began in the mid 1970s, it would only gain momentum after the second oil crisis, in 1979, when Brazil’s continued vulnerability to oil shocks became exposed. With a strong political will to enhance the national program, the government designed several incentives to lure sugarcane producers, car manufactures, distillers and others to adjust their operations to produce ethanol. With such incentives, Brazil was able to develop a substantial ethanol industry by the 1980s. It is reported that in 1987 ethanol production in Brazil had increased by 290 percent from the late 1970s, producing 15 billion liters in 1987. Thanks to high subsidies and other government incentives, 92 percent of new car sales between 1983 and 1988 were alcohol-fueled.
Yet, the ethanol boom in Brazil experienced an external shock when the main factors that originally incentivized the government to invest in ethanol production changed. While declining oil prices in the mid-1980s made ethanol production less economically viable, rising sugar prices in 1989 led sugarcane growers to divert crops to sugar exports. As declining ethanol production was unable to satisfy ongoing demand generated by the spread of alcohol-fueled vehicles, consumers lost confidence in the reliance of ethanol, which greatly discredited ProAlcool. By the end of the 1990s, ethanol-fueled vehicles accounted for less than 1 percent of Brazil’s total car sales.
Ethanol became once again an attractive option for both producers and consumers in 2003, when car manufacturers introduced the “flex-fuel” vehicle. This new technology allowed consumers to switch from ethanol to gasoline, or vice-versa, in accordance with fuel prices and preferences. This flexibility allowed consumers to regain confidence in ethanol, which became an even more attractive fuel with record oil prices. Hence, ethanol production in Brazil regained impetus in 2003, and has now reached approximately 18 million liters in 2006-2007. Flex-fuel vehicles have become such an attractive option for consumers in Brazil, that it now comprises 86 percent of the Brazilian auto market, and 91 percent of all passenger vehicles in the country.
While Brazil has experienced a growth in ethanol production and consumption, the country has also experienced a rise in natural gas demand. As natural gas is mainly used in Brazil’s industrial sector, high oil prices have led industries to demand more natural gas as a substitute for oil. However, unlike ethanol, much of the demand for natural gas is supplied by imports; natural gas production has grown slowly in recent years due to an underdeveloped domestic transportation infrastructure that connects regions to the coast but not to one another, as well as low domestic prices that do not appeal to producers. Low domestic prices, however, are part of an explicit government policy to diversify energy sources. Hence, as low domestic natural gas prices preclude domestic producers from producing natural gas to their full potential, Brazil has increasingly relied on imports from Bolivia and Argentina.
Of the two countries from which Brazil imports natural gas, Bolivian imports represent one of Brazil’s current problems in terms of energy self-sufficiency. Bolivian natural gas comprises a considerable share of Brazilian imports, accounting for 42 percent as of 2006. Yet, on May 1, 2006, Bolivia declared its hydrocarbon nationalization decree, which established the transfer of ownership and possession of 100 percent of oil and gas production in the country to the state-owned company Yacimientos Petroliferos Fiscales de Bolivia (YPFB). This decree affected Brazilian investments in the country, as following the nationalization, Bolivian troops proceeded to seize gas fields and installations, including two Brazilian-owned refineries and their associated downstream operations. Ongoing talks between the two countries have revolved around prices of natural gas imports, which Bolivia seeks to increase by 80 percent, and compensation for Brazilian investments in the country.
This decree has created a conundrum for Brazil’s policy of importing natural gas, as much of Bolivian gas supplies Brazil’s burgeoning industries in the southeast of Brazil. To reduce the country’s vulnerability, Brazil plans to accelerate the development of its domestic natural gas resources to supply its growing southeast market. At the same time, however, Brazil declared recently that it will invest between US$ 750 million and US$ 1 billion in Bolivian natural gas, stating that it is “willing to invest in Bolivia especially because of demand for natural gas in Brazil,” and thus accepts “a risk for investment in the countries like Bolivia” (sic). Hence, despite Brazilian policy to diminish its vulnerability to Bolivian gas, the necessity of supplying the country’s voracious industry has led Brazil to not only maintain its import policy, but to also invest in it. Yet, as Brazil imports 72 percent of Bolivia’s total gas production, the latter is inexorably dependent on Brazil for much of its revenue, making both countries interdependent at least in the short-run.
The increase of natural gas and biofuels in the Brazilian energy matrix may have contributed to the diminished use of oil in Brazil over the years, although such correlation cannot be demonstrated without a statistical regression analysis. As seen previously in figure 3, oil consumption has declined over the years, from comprising 50 percent of the Brazilian energy matrix in 1980 to accounting for 42 percent in 2004. As government policies allowed for greater accessibility of alternative fuels, ethanol was reported to have substituted approximately 230 billion liters of gasoline, while high oil prices have led industries in Brazil to increasingly use natural gas.
In line with Brazil’s policy of becoming more energy self-sufficient, the government has reorganized the oil sector in an effort to become less dependent on foreign sources of oil. Brazil’s oil sector has undergone profound regulatory and structural changes in the last decade. Created in 1953, Brazil’s national oil (and natural gas) company, Petrobras, had enjoyed exclusive rights to explore and produce oil and natural gas in Brazil. This situation changed in 1995 when Brazil adopted the Ninth Amendment to the Brazilian Constitution, allowing other companies to become involved in oil exploration and production. Two years later, further significant changes were adopted with the Oil Law of 1997, whereby a legal and regulatory framework for the oil industry was established, creating Brazil’s national regulator for the industry, the Agencia Nacional do Petroleo (ANP). ANP is now responsible for issuing exploration and production licenses, as well as ensuring compliance with Brazilian regulations.
Although Brazil’s national oil company competes with 50 other companies that have received exploration and production rights in Brazil, Petrobras remains the country’s dominant player in the oil sector. Although the company is no longer state-owned, it is nevertheless state-controlled, with the government retaining 55.7 percent of Petrobras’ voting shares, as shown in figure 6. Petrobras has also inherited most of the country’s exploration and production projects, controlling 95 percent of Brazil’s crude oil production and holding majority positions in up-, mid-, and downstream activities.
Despite Petrobras’ de facto monopoly of the Brazilian oil sector and the government’s significant control of the company, Petrobras has demonstrated large efficiency gains since the liberalization of the Brazilian oil sector. The company has received international recognition for its technical efficiency and expertise in deepwater offshore drilling technology and production. Petrobras’ deep-water and ultra-deep-water exploration have yielded substantial discoveries that have significantly contributed to Brazil’s growing oil reserves. Oil reserves are reported to have increased nearly eightfold from 1980 to 2005.
Recently, Petrobras’ technical expertise has allowed the company to make the world’s biggest oil field discovery in 7 years, discovering 5 to 8 billion barrels of oil in the Tupi oil field, in Brazil’s Santos basin. The magnitude of such a discovery can be better appreciated when compared to other countries’ current proven oil reserves, as the Tupi field holds the equivalent amount (or more, if greater than 5 billion barrels) of Ecuador’s proven oil reserves. The recent discovery has, therefore, substantially added to Brazil’s 11.7 billion barrels of proven oil reserves. Further substantial discoveries are expected, as Petrobras has recently announced the possible existence of an even bigger field neighboring the Tupi oil field, expected to be five times larger than the Tupi.
Concurrent with these new discoveries, Petrobras’ production has also contributed to Brazil’s oil self-sufficiency. Oil output in Brazil is reported to have nearly doubled since the 1990s, reaching 1.7 million barrels per day in 2006 and 2.1 million barrels per day in 2007. Such an increase in production is largely attributed to Petrobras, which controls over 95 percent of crude oil production in Brazil. As shown in figure 8, Brazil’s oil production and consumption levels had been narrowing over the years, and finally on April 21st, 2006 - the anniversary day of Tiradentes, the country’s independence hero – Brazilian President Luis Inacio Lula da Silva proclaimed the country’s self-sufficiency in oil, an achievement sought by the Brazilian government since the country’ reorganization of the oil sector.
Conclusion
This post has sought to explain the internal mechanisms driving Brazil’s recent accomplishments in energy self-sufficiency. Such accomplishments have been achieved due to a combination of resource endowments and government policies. However, despite Brazil’s vast resources, the country has only begun to achieve self-sufficiency after the government established policies to diversify its energy matrix. Exogenous factors such as high oil prices have certainly provided the initial impetus to launch such policies. Yet, the technological outcomes of such government policies have sustained much of the momentum. With new technology in the form of flex-fuel vehicles for Brazilian transportation, and Petrobras’ growing expertise in deepwater offshore drilling technology and production, Brazil’s dependence on foreign sources of energy has progressively diminished.
Although Brazil’s “Achilles heal” lies in its imports of natural gas from Bolivia, the country nevertheless remains in a comfortable position as Bolivia’s most important customer. This position, therefore, allows Brazil to set the tone of future negotiations while it reconsiders the Bolivian dilemma as well as its domestic natural gas potential. With new oil field discoveries led by Petrobras, the natural gas conundrum may be resolved if substantial natural gas reserves are concurrently located. New discoveries together with complications in the Bolivia-Brazil natural gas relationship may provide further political will for Brazil to invest in its domestic distribution network for natural gas, an outstanding issue in Brazil’s energy matrix.
Yet, despite the natural gas dilemma, Brazil’s energy policies have paid dividends for the country’s energy situation. As the volatility of fossil fuels have led many net importing countries to debate the best policies to achieve greater energy security, Brazil stands as the vanguard country in devising policies to achieve such goals. Hence, the Brazilian experience serves as a model not only for energy diversification efforts, but also for efficient government policies.
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