The discovery of huge reserves of offshore natural gas, coupled with fast growing amounts of power cogenerated from sugar cane waste, should result in Brazil becoming a regional leader in cogeneration, writes Patrick Knight.

Brazil could well become one of the world’s largest players in cogeneration and on-site power in the next few years. Massive new reserves of gas, some dedicated, some associated with crude oil, have been discovered off the coast of Sao Paulo state in the last three years.

Gas from the first of the offshore gas fields, Mexilhao, will start to come ashore at the end of this year when an initial 7.5 million m3 will be fed into the trunk grid each day – this amount will soon to rise to 18 million m3. The trunk line links Sao Paulo with Rio de Janeiro state, where fields producing almost half of the 60 million m3/day of (mostly) associated gas in Brazil is produced.

About 20 million m3 of this is available to distributors, most of the remaining gas is used at the 11 refineries owned by the controlled Petrobras oil company, or it is flared. Additionally, about 30 million m3 arrives each day from Bolivia.

Electricity had to be rationed in Brazil in 2001, after inadequate investments in generating capacity caused supply to lag behind demand, and prolonged dry weather reduced output at hydroplants. However, rationing stimulated the 200 companies which produce sugar and alcohol in Brazil to start upgrading equipment used to generate steam and electricity from sugar cane waste.

It is estimated in 10 years time, that the 23,000 MW generated from around 500 sugar mills located around the country, will feed into the grid during much of the year.

GROWTH IN COGENERATION

Natural gas and biofuels will be the main source of distributed power in the next few years. Brazil is one of the world’s leading producers of pulp, as well as a major producer of timber; some companies in the forest products industry already contribute surplus electricity to the grid.

Roberto Silvestrin, Executive Director of Associação Paulista de Cogeração de Energia, or Cogen-SP, says that Sao Paulo (a city of about 15 million inhabitants) is home to a plant now producing 15 MW of electricity from the methane emerging from a waste tip – the largest such plant in the world.

Cogen-SP, which has 83 members, says in March this year plants in the bioelectricity sector had the capacity to generate 3650 MW, while 1211 MW were being generated from natural gas at cogeneration plants – between them, they use about 2.7 million m3 of gas a day. Including the extra capacity to be added this year, as well as the gas used to power air conditioning projects, total cogeneration capacity will increase to 8800 MW during 2009, representing about 9% of the total electricity generating capacity available in Brazil.

The gas flow from the Mexilhao field, set to rise to 15 million m3 during 2010, will allow Brazil’s largest distributor, Comgas (jointly owned by British Gas and Shell) to greatly increase the amount of gas sold for cogeneration purposes. Comgas’ concession in greater Sao Paulo and the surrounding area houses 36% of Brazil’s industrial capacity.

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Comgas now sells 12–14 million m3 a day and plans to greatly increase the amount of gas sold for cogeneration purposes, as well as for air conditioning, to industry, shopping centres, hospitals, hotels and offices. Comgas now supplies about 860,000 m3 of gas to 19 cogeneration plants as well as to dozens of chilling plants.

The arrival of gas from Mexilhao will be just the first chapter in what is set to be a period of fast expansion for natural gas, a fuel which has seen its share of all the energy produced in Brazil increase from 3% to 9% in just a decade. Gas’s share is expected to rise to 12% before long.

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Hardly a month goes by without a large oil/gas field being discovered beneath the ‘salt level’ which extends for about 800 km along the Brazilian coast (about 250 km from the shore). About 20% of gas is associated with crude oil in most fields, although a few fields contain almost exclusively gas.

SUGAR CANE TO ALCOHOL

Brazil vies with India for the title of the world’s largest producer of sugar cane, which has been a mainstay of the country’s economy and a leading export earner for 400 years.

Brazil is now the world’s largest exporter of sugar, and sells about 25 million tonnes of the product each year – about 45% of all the sugar traded freely worldwide. Demand for sugar, of which a total of about 170 million tonnes is consumed annually, increases by approximately 2% each year. About 120 million tonnes of this sugar is produced in countries which do not export the product. Brazil is one of the few countries able to continue producing more sugar cane, so most of the extra three million tonnes needed each year will be Brazilian.

About 600 million tonnes of sugar cane will be harvested this year, half to be made into sugar, the rest into alcohol fuel. With demand growing steadily, it is expected that close to a billion tonnes of cane will be crushed by 2020.

Before oil was found off Rio de Janeiro in the 1970s, Brazil imported about 80% of the oil it consumed. The sudden surge in the price of oil forced the government to give large incentives to the sugar industry to encourage it to start producing much more alcohol for use in cars fitted with compatible engines.

Within a couple of years, more than 80% of all new cars were fitted with alcohol-powered engines. Alcohol was produced at dozens of new mills which mainly made just the fuel.

Brazil’s sugar industry has always been virtually self-sufficient for energy. Bagasse, the by-product left after the juice has been squeezed from the sugar cane, is burnt in boilers which produce the electricity and steam used to power the mills. A tonne of cane contains the equivalent of about 1.2 barrels of oil, and about 250 kg of bagasse remains after each tonne of cane has been processed. About 80 tonnes of cane is grown on one hectare of land.

Until very recently, bagasse was a cost rather than a source of revenue for mills, and little attempt was made to process it efficiently. Even so, some mills produced more electricity than they needed during the eight months of the year when harvesting takes place. This power was very welcome in towns adjacent to mills – being available during the winter months when little rain falls and reservoirs feeding power stations run low.

ALCOHOL BOOM

The first boom in demand for alcohol did not last long; the world oil price soon fell to the point where the fuel became uncompetitive, and the large subsidy needed to maintain it could no longer be afforded. Since the early 1970s Brazil has gradually moved to being self-sufficient in oil.

To prevent a surplus of alcohol building up, up to 25% of alcohol was blended with the gasoline sold in Brazil, while mills which had hitherto only made alcohol, began making sugar for export as well. Meanwhile the motor industry set about developing engines able to run indiscriminately on gasoline, alcohol, or a blend of the two – the first of these being sold in 2003.

Alcohol is considerably cheaper than gasoline for most of the year in most parts of Brazil, so 80% of all new cars were being fitted with ‘flex’ engines within two years, and there is now a fleet of about four million such vehicles. Coupled with the prospect of world demand for alcohol growing fast, mills once again started to give greater emphasis to the product, demand for which has grown by up to 30% in each of the last three years.

Until the advent of ‘flex’, Brazil’s sugar industry was dominated by relatively small, family owned firms. But as it became clear that the world reserves of oil were finite, and crude prices began to rise, investors – initially from companies in the sugar industry itself, then from trading companies and most recently, international oil companies – decided they needed to get involved in renewable fuels, of which ethanol made from sugar cane is amongst the most efficient.

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Plans to build up to 200 brand new mills were announced, 85 having started up so far. The new investors brought a broader approach to the industry, concluding that if high pressure boilers were installed, the sale of electricity might generate as much revenue as sugar and alcohol.

ELECTRICITY MORE VALUABLE

All the mills built in the past five years have been fitted with the latest generation of high pressure boilers together with generators, and so produce up to four times as much electricity from each tonne of bagasse than the earlier plants were able to do. If they are large enough to justify it, existing mills are being modernized as well.

Although the sugar industry feels that the price offered for the electricity it generates is too low and it often does not meet costs, it seems certain that within a few years, up to 30,000 MW (30% of the capacity now installed in Brazil) will come from the 350 mills scattered around the country. Up to 20,000 MW of it will be delivered to the grid, or sold direct to consumers.

Cogen-SP is playing an active role here – finding ways in which transmission lines from mills to the grid, as well as transformers which can form 20% of the cost of a project, can be financed.

Cane is now planted on about 7.5 million hectares in Brazil, a third as much as for soya and maize, and a fraction of the 200 million hectares on which cattle graze. Up to a billion tonnes of cane will be grown on about 15 million hectares by 2020.

More cane is gradually being harvested by machine, rather than being burnt prior to being cut manually. This means more leaves which previously went up in flames, are being taken to mills, allowing the amount of electricity generated to increase by up to 50%.

Ways may soon be found to produce alcohol from the cellulose contained in bagasse. But even if the cellulosic route does prove feasible, the amount of bagasse available will increase fast enough to meet all the demand. Some waste material will still be available for making electricity after lignine has been extracted from the bagasse.

In contrast to the gas industry, where the engines needed to generate relatively small amounts of electricity and the turbines used at large scale industrial projects are now all imported, all but a very small proportion of the equipment used in the very largest boilers at sugar mills, are made in Brazil.

MARKETS FOR NEW GAS

The story of gas has been very erratic since concessions to distribute gas in 23 states in Brazil were privatized in 1999 and a line opened in 2000 bringing 30 million m3 a day from Bolivia.

The initial priority was to find markets for all the extra gas, and companies such as Comgas set about developing markets, giving cogeneration a priority.

A lot less rain than normal fell in 1999–2000, while much less had been invested in new generating capacity than in previous years, so rationing became unavoidable in 2001. Generating as much electricity as possible from gas, as well as fuel oil and diesel, became a priority.

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Just as the sales of gas to industry, commerce and as a fuel for motor vehicles were gathering pace, and as cogeneration projects were becoming popular, distributors were obliged to give priority to making gas available for the many gas-fired power plants being built in a hurry.

Rationing, coupled with price rises, caused demand for electricity to fall during the rationing period, and the surplus energy afterwards enabled prices to be cut. This situation has only been reverted in the past few years, while the economy has been growing by about 5% a year.

The strong growth caused the margin between supply and demand to fall to a critical level again last year. This obliged gas-fired power stations to operate for much of the year, restricting what was available for other purposes.

Also last year, political turbulence in Bolivia resulted in the gas flow from there being reduced; the Brazilian government responded by building two very expensive terminals to re-gasify imported LNG. And with no new hydroelectric power stations in the pipeline, the government decided to encourage the building of a new generation of thermal power stations.

Because take or pay contracts were involved, to ensure it was sold, gas from Bolivia was initially sold to distributors at a competitive price. This enabled Comgas to increase sales from three million m3 in 1999 to 14 million m3 last year, a third of all sales by all gas distributors. A slowdown in demand from industry cut sales to about 11 million m3 in the middle of last year.

Uncertainty about the reliability of supply has, until now, prejudiced the plans of Comgas and other distributors to seek more customers for cogeneration projects.

Work on the plant which will process the gas from the Mexilhao field is well advanced; while a 5 km tunnel to facilitate its transport up the 800 metre escarpment to the plateau on which Sao Paulo and most other cities in the state are located, has been built.

Alexandre Breda, Comgas Director of Sales and Supply, says he now has something solid to show potential customers other than graphs illustrating how much gas will be available in a few years time.

Much of the electricity used in the state of Sao Paulo is imported, half from the giant Itaipu power station jointly owned by Brazil and Paraguay. The gas now used in the state comes either from Bolivia or the fields off Rio de Janeiro – apart from the 800,000 m3 a day arriving from the Merluza field, an early discovery made by Shell on the fringe of the pre-salt area in Santos.

Last year, the state government set up a commission to study all the implications of the new finds. A key aspect will be to determine a pricing structure for the new gas. Largely because so much of the extra generating capacity contracted in the past few years has been for costly thermal stations, electricity prices are set to rise sharply in Brazil in the next few years.

Gas prices are also high at the moment, partly because of the high cost involved in developing new fields, building the pipelines needed, and due to last year’s construction of two large plants able to re-gasify imported LNG.

As so much extra gas will soon become available, the fuel is expected to become increasingly competitive with electricity, encouraging an increased proportion of large users to switch to gas.

As well as building more thermal power plants, contracts have been awarded in the past year for the construction of two very large new hydroelectric plants in the Amazon region. But these will also involve building costly 3000 km transmission systems to the south central, where the electricity will be needed. Back-up power will be needed in case this supply fails, says Cogen-SP’s Silverstrin, and what could be more appropriate than distributed power?

Patrick Knight writes on energy issues from South America.
e-mail: patrick_knight@uol.com.br