Brazil faces looming transport fuel shortfall

A new report from Bloomberg New Energy Finance (BNEF) reveals that Brazil, if recent trends continue, will be unable to meet its domestic light vehicle demand for fuel as soon as 2017.

The report states that demand could outstrip supply by as much as 9 to 12 billion litres per year by 2021, equivalent to 20% of Brazil’s demand, and that the country must either make substantial new investment in sugarcane ethanol production or gasoline refining, or it must allow diesel light vehicles on the roads.

Brazil has met the majority of its light fuel demand with ethanol produced from sugarcane according to BNEF data, due to a boom in capital investment for new ethanol projects which reached $6.4 billion (€4.9 billion) in 2008, but which drastically dropped to $256 million last year.  Partly as a result, ethanol use fell from 54% in 2009 to 40% in 2012.

‘It was not long ago that Brazil was in a position to brag about nearing energy independence, in large part because of the strong growth of its ethanol sector,’ says Salim Morsy, BNEF lead analyst for biofuels in Latin America. ‘But investment has slumped since for a variety of reasons, making the country increasingly dependent on foreign gasoline refiners.  It's a costly and potentially untenable position, and it puts Brazil far off track as far as its energy security goals are concerned.’

The use of diesel fuel could help address the looming shortfall, but Brazil currently prohibits the sale of diesel-fuelled passenger vehicles.  Passenger vehicles account for more than two-thirds of all vehicles on the roads.  Motorists are therefore restricted to gasoline, ethanol or some combination of the two – a popular option driving the number of 'flex-fuel' vehicles on Brazil’s roads.

Another alternative open to Brazil is to boost domestic ethanol production through further investment. BNEF estimates that, by 2020, at least 14 billion litres of additional anhydrous ethanol production capacity would be needed to fill the domestic fuel supply gap. Brazil could up its ethanol cane crushing capacity by more than a third (287 million tonnes) by 2021 to address the gap, but this would require around $28 billion in new investment in 2012 currency.