Severe drought crippling Brazil’s power sector

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Brazil’s power sector will record imbalances between generation and demand due to the severe drought that is affecting the country and the South American region, according to a new analysis by research firm Wood Mackenzie.

Although the majority of South American countries including Brazil, Argentina and Chile are heavily reliant on fossil fuels for electricity, hydropower plays a key role in energy stability.

However, with the decline in water levels in dams with hydropower plants, Brazil is facing a huge challenge to meet growing energy demand.

For instance, Brazilian system operator ONS has indicated that the country is faced with a 5.5GW decline in hydropower generation for October and November if the current water levels in dams remain low.

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This means frequent power outages if the current status is not addressed or increases in reliance on fossil fuels, a development that would expand the carbon footprint of the country.

However, Gabriel Dufflis, a lead analyst with Wood Mackenzie, said an increase in natural gas and LNG imports being proposed by governments in the region could help stabilise electricity supply in line with demand.

Dufflis, added: “Can Argentina boost its natural gas production to secure extra thermal dispatch and also export gas to both Brazil and Chile, which will also need Argentine gas?”

Natural gas producers in Argentina have however increased production by 20% since April.

Henrique Anjos, Wood Mackenzie’s lead analyst, Latin America gas and LNG, added: “In the case of gas exports to Brazil, transmission pipeline bottlenecks can also jeopardise the capacity of Argentina to increase gas deliveries.”

“The total volumes will depend on how Argentina will deal with the lack of hydro generation. If the country wants to honour its firm agreement with Chilean players, it will export electricity generated based on fuel oil and diesel or provide gas price signals now to stimulate drilling activity during the summer.”

However, Bolivia can help the region meet its growing demand for natural gas by increasing production.

Anjos said: “With LNG spot prices above $12 per million British thermal units in the upcoming months and the tight balance in Brazil, Bolivia can negotiate better conditions with Brazilian players for short-term contracts, which might expect a large premium price.”

With two LNG gas terminals anticipated to come online in Brazil in the coming months, Anjos said: “The new terminals will support the increase of LNG imports to record levels, remaining at full effective capacity throughout the year.”