Chemical industry to change Brazil’s gas demand profile

Silhouette of statue of Jesus Christ at sunset, Rio de Janeiro, Brazil

Brazil’s future LNG requirements could be heightened by plans to upgrade and expand the country’s chemical industry, according to Brazilian industry participants.

These plans come in addition to previously reported projects to build gas-fired power generation infrastructure in Latin America’s largest economy, which are designed to cover part a projected annual electricity demand growth rate of 5.7%, according to calculations of Brazilian power transmission system operator (TSO) Operador Nacional do Sistema Elétrico, while reducing exposure to hydroelectric power.

“I believe whoever is at the helm of the next government will prioritise the utilisation of natural gas domestically, and a good use for it would be in the chemical industry,” the chief of staff at the country’s regulator said recently. “Our chemical industry depends on this gas to survive competition with other markets.”

Brazil’s chemical industry is the world’s ninth largest by revenue, having reached $122bn in 2008, according to lobby group ABIQUIM. However, Brazil is a net importer of chemical products, with its trade imbalance in the sector having reached $23.2bn in the same year. ABIQUIM says this gap has widened in recent years, and is set to widen further, due to fierce competition from foreign producers.

The country is particularly short of fertilisers (which were the ninth-largest imported chemical category by value in US dollars in 2008), and this is affecting its rapidly expanding biofuels industry. Access to domestic sources of gas is seen as a way of increasing the sector’s competitiveness, providing the price of gas produced offshore in the coming years meets industry expectations that it will fall to a level closer to the price of Bolivian gas imports.

While an important driver, the chemical industry’s demand potential is limited in comparison to gas-fired power generation, according to industry insiders. One source said the chemical industry could potentially generate an extra 5 million cubic metres/day (Mm3/day) of gas demand by 2013. Petrobras is projecting that gas demand will reach 135Mm3/day by 2013, from the 58Mm3/day recorded in 2008.

Still, as a result of the projected growth in the chemical industry, Brazil’s demand profile will undoubtedly become more nuanced. The chemicals industry is less exposed to seasonality than the power sector, so we could expect that it will jump on the back of baseload gas demand. The implications of this on the LNG market have yet to be studied, but there could well be new opportunities for traders arising from it in both the buying and selling sides.  

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