The energy crisis sweeping the world is about to strike South America, where a historic drought has driven the region desperately to replace a collapse in hydropower production.
Brazil is on the verge of power rationing and major blackouts, and will have to rely heavily on importing supplies from Uruguay and Argentina until next month until the start of the rainy season and until the start of the rainy season. that the roadblocks are filled. This will strain the entire continent, with countries like Chile also hoping to rely on Argentine gas to survive their own hydropower crisis.
South America is in many ways ahead of the energy transition. Brazil, Latin America’s largest economy, has relied on its hydropower industry for decades and is said to typically use this source for over 60% of the country’s electricity. But climate change is changing the dynamics as long-lasting and worsening droughts engulf the region, making hydropower increasingly unreliable.
Now the continent will be forced to compete for natural gas as a backup fuel, just as much of the world is doing the same, with Europe and China also facing huge energy shortages.
The sharp increase in export demand has already caused gas prices to skyrocket. New York-traded futures have more than doubled this year. In Asia, prices for liquefied natural gas, which is shipped around the world, have quintupled since April to a record high.
The timing could hardly be worse. South America still struggles to emerge from the economic shock of the pandemic, and rising grocery and electricity bills could increase poverty and accelerate emigration to the United States and other wealthy countries . The power crisis has become a huge political headache for Brazilian President Jair Bolsonaro, whose popularity is plummeting ahead of next year’s elections.
“There could be a race to the bottom of the populists,” said Schreiner Parker, vice president for Latin America at consultancy firm Rystad Energy.
Brazil’s hydroelectric reservoirs in the southeast and center-west, which account for nearly three-quarters of the country’s installed capacity, have fallen to 17% amid the worst drought in 91 years. Itaipú Binacional, a huge hydroelectric power station owned equally by Brazil and Paraguay, produced at its lowest level since 1993 on an annualized basis.
However, the energy situation in Latin America is by no means uniform. While Brazil and Chile are feeling it, Colombia is bursting with power. Thanks to the La Niña climate regime, which has resulted in increased precipitation in northeastern South America, Colombian dams have reached a historically high level of 86 percent of their capacity, almost double the levels of ‘one year ago. Hydropower represents up to three quarters of the country’s energy mix.
“This means that the price of electricity has been practically zero in the last three months on the spot market,” Colombian Minister of Mines and Energy Diego Mesa said on Thursday in an interview at headquarters. Bloomberg in New York.
But for Brazil and others, things could get even more difficult.
La Niña is expected to delay the rainy season in the continent’s southern cone and make 2022 an even more difficult year for hydropower. There is a more than 70% chance that La Niña, caused by variations in ocean surface temperatures, will form across the equatorial Pacific between November and January, the US Climate Prediction Center said in early September.
This would almost certainly mean a new wave of drought for both the western United States, as well as southern Brazil and Argentina. The regions were desiccated by a La Niña at the end of 2020 at the beginning of 2021.
“This is my biggest concern,” said Gabriel Dufflis, senior analyst with Wood Mackenzie’s Brazil energy sector research team. “If that happens, we will enter the dry spell of 2022 in bad shape. “
And South America isn’t the only region struggling to compensate for dried up hydroelectric reservoirs as fossil fuel prices rise. A drought in the western United States has dried up rivers and streams, reducing reservoir levels at some of the nation’s largest dams to record levels. Overall, extremely dry conditions are expected to reduce the country’s hydropower production by 14% in 2021 compared to last year, according to the US Energy Information Administration.
“We are in a new paradigm of lower precipitation across the West” in the United States, said Ethan Paterno, energy markets expert at PA Consulting, a consulting firm. “Ultimately, this is going to mean a drop in hydroelectric production in the future.”
by Peter Millard & Mark Chediak, Bloomberg