FocusEnergy woes haunt South America

18 January 2008 22:27  [Source: ICIS news]

HOUSTON (ICIS news)--An electricity shortage in South America this year could result in higher costs for the petrochemical industry, feedstock constraints and possibly unplanned stoppages due to blackouts, market sources said.

The high demand for gas in the region has led to scarcity in Brazil, Argentina and Chile, as well as Bolivia which is a supplier of gas to the region.

Natural gas supplies in Brazil are currently constrained because thermal power generation is running at the greatest capacity. The hydroelectric reservoirs, which supply most of the country’s power, are running low due to light rainfall.

Since naphtha is the primary petrochemical feedstock in Brazil, natural gas supply constraints should not have an effect on most of Brazil's crackers. However, chemical industry sources told ICIS news domestic petrochemical demand across the country depends on the ample supply of electricity in the medium term.

“We don’t expect there to be physical problems with the power supply this year, but industrial consumers could have problems contracting the energy they need for expansion projects because of the cost,” said Jonathan Colombo, a technical coordinator for Brazil’s Large Energy Consumers Association (Abrace).

Spot electricity prices have already risen due to the demand, Colombo said in Portuguese, and consumers who do not have their supplies locked in could face commercial difficulties in the year ahead.

Brazilian government officials said the situation is under control. Oil-fired thermal plants will be started up in the coming days to bolster the power supply in areas where gas cannot be delivered. Alternative sources of energy like thermal power from sugarcane pulp have also begun to feature more prominently.

Energy Ministry officials said state-run Petrobras will divert natural gas toward supplying the country’s gas-fired power plants, and will instead draw from oil and naphtha supplies for its own fuel requirements.

Presidential appointee Edison Lobao, who has been tapped for the currently vacant post of Energy Minister and will take office on Monday, guaranteed that Brazil would not face electricity rationing this year.

“Even if it doesn’t rain there will be no rationing this year,” Lobao said in Portuguese, according to state media reports.

In Argentina, blackouts continue to occur.

The latest incident happened on Wednesday in the Santa Fe province, affecting electrical supply to eleven cities, industry sources said. EPE, the electrical utility, blamed the blackout on record consumption caused by high temperatures during the summer of the Southern Hemisphere.

Argentina’s petrochemical industry has not been affected by the blackouts so far, a local industry source said on Wednesday. However, the fact that these problems have surfaced in the summer makes people uneasy about the possibility of more blackouts in the winter, when gas demand is expected to increase.

Argentina's Domestic Commerce Secretary Guillermo Moreno indicated that the government will restrict exports of fuel oil, diesel, gasoline and naphtha to help moderate rising domestic prices until supplies return to normal and prices drop to levels seen in October 2007, industry sources said.

Bolivia has already told Argentine authorities that deliveries of natural gas to Argentina will be about a third of the volume initially negotiated, industry sources said.

Bolivia has oversold its production and needs to ramp up investment to make sure that production will not decline further in the near future. Brazil has stepped in with heavy investments and will count on its political ties to Bolivia to ensure continued supplies.

Argentina’s energy woes have all but extinguished hopes that the country will resume natural gas exports to Methanex’s 3.8m tonne/year methanol complex in Chile, US market participants said.

“If gas does resume, it will be at a higher price,” said an analyst.

Methanex announced in June 2007 that it was operating only one of its four Chile lines amid Argentine gas supply disruptions. The lost methanol capacity resulted in tight supplies and global price spikes.

(With additional reporting by George Martin and David Barry in Houston)

By: John Waggoner
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly