Brazilian fossil fuel demand to remain high amid energy transition

Brazilian demand for fossil fuels is expected to remain robust in the coming years, as the transition to renewables becomes more critical because of climate change, but still faces infrastructure and natural bottlenecks, among others, industry experts said in a recent energy conference in Northeast Brazil.

As the world grapples with the urgent need for energy transition, fossil fuels remain at the forefront of the global energy supply. Carlos Garibaldi, the executive secretary of the Association of Oil, Gas, and Renewable Energy Companies of Latin America and the Caribbean, or Arpel, emphasized the current stability of oil and natural gas, which are still the most reliable sources of energy.

"When there is no rain, wind or sun, there is still gas," Garibaldi said at the International Brazil Energy Meeting, or Ibem, in Bahia state. Garibaldi added the gas and oil industry is taking measures to decarbonize production by electrifying processes, replacing equipment, and containing leaks and burns.

While alternatives depend heavily on critical minerals and are susceptible to weather variation, fossil fuels like gas offer a consistent energy supply, particularly during periods of low renewable energy generation, he said.

S&P Global Commodity Insights estimates that demand for gasoline A, or gasoline before the mandatory anhydrous ethanol blend, will rise by 2.17% on the year in 2025, hitting 566,531 b/d, then jump by 3.68% to 587,391 b/d in 2026, according to the Latin America Short-Term Outlook report for refined products.

Demand for diesel A, also unblended, is expected to grow by 1.90% in 2025, reaching 1.19 million b/d, and then increase by 2.01% in 2026, to 1.22 million b/d.

Garibaldi also expressed optimism about the future, advocating for natural gas and nuclear energy as pivotal players in the transition away from oil.

One significant challenge is the lack of coordinated action among Latin American countries to optimize the use of their abundant resources. Brazil, with its energy oversupply and potential for renewable integration, could lead the charge if it strengthens its multi-lateral relationships, according to Thiago Guilherme Ferreira Prado, president of Brazil's Energetic Research Company.

Reliance on S500, S1800 diesel

In Brazil, private refiner Acelen is making strides in sustainable energy by investing in macaúba palm oil to produce sustainable aviation fuel and green diesel. Macaúba is a species of palm native in Latin America, mostly south of Mexico.

Matheus Soares Matos, director at private refineries association Refina Brasil, noted that while the biorefinery project is still in its engineering phases, it aims to position Brazil as a value-added product exporter rather than merely a commodities supplier. This aligns with the regulatory push for biofuels, driven by mandatory fossil fuel-biofuel blends.

Despite these advancements, the Brazilian energy landscape remains heavily reliant on S500 (500 ppm of sulfur) and S1800 (1,800 ppm) diesel for thermal power plants. The recent logistical adjustments to manage fuel supply have led to significant price increases, impacting all fuel consumers.

Seasonal droughts in Brazil, exacerbated by climate change and the El Niño phenomenon, pose additional challenges to energy supply and demand. While Brazil's Aneel national power agency indicates that diesel demand is generally stable, the growing interest in gas and renewable energy sources suggests a potential shift in the energy landscape.

Bruno Stukart, an energy research analyst at the Brazilian government's Energy Research Company, forecasts a decrease in diesel demand as interconnected systems expand, although isolated systems in the Amazon region will continue to rely on thermal power.

Looking ahead, the Brazilian National Gas and Oil Agency has proposed a phased-out plan for S500 and S1800 diesel, aiming to transition to S10 by the end of 2024. Mandelli cautions that the implementation of this plan may not occur as quickly as anticipated, given the need to balance environmental concerns, supply security, and social implications.