Posted on 07 Jun 2022
The world is facing multiple crises such as commodity markets being transformed as a result of the pandemic, the war in Ukraine, and the effects of climate change. However, the conflict between two major world exporters of basic products and energy resources has pushed up the prices of raw materials even more. Russia is the main exporter of fertilizers and natural gas, and the second largest exporter of crude oil globally. Thus, the crisis unleashed by the war in Ukraine has reduced the global supply of gas, increasing prices, but also generating supply challenges. “It is not known if the countries are going to be able to count on the gas they need,” comments Alejandro Wagner, executive director of Alacero.
Unfortunately, in a scenario of crisis upon crisis, investments in new energy formats remain in the background, making us hostage to fossil fuels. The increase in the cost of energy also means that many countries in the region need to import more gas, making local production even more expensive and, as a consequence, losing competitiveness in the international market.
However, some initiatives seek to diversify energy sources and reduce dependence on Russian gas by 2/3 by the end of 2022. And there are things to do, we need to:
• Assess the internal energy production of each country so as not to depend on external markets;
• promote clean energy production (and its investments) as a strategy to suppress demand in a sustainable way;
• improve regulatory frameworks through structural reforms that reduce taxes and costs to produce clean energy, thus improving energy and fuel costs for transportation;
• promote cooperation among the countries of the region to increase intra-regional trade and energy support among Latin American countries;
• improve energy efficiency.
The steel industry is, at the same time, a consumer and generator of energy in its production process. In recent decades, it has gone through a process of improving energy efficiency in its plants and has already promoted large reductions in use, promoting benefits for the environment and for its economic competitiveness.
Due to its characteristic of infinite recyclability, steel has a wide potential for decarbonisation: according to data from worldsteel, of the 1.8 million tons produced per year, it is estimated that 630 million are used as raw material, avoiding the emission of 950 million tons of CO2. In this way, the increased use of renewable energy sources is a way to speed up the process.
According to Wagner, we live in times of unprecedented change, which are redefining the sector’s agenda. “In Latin America we have two big issues: climate change and geopolitics, I see two possible solution paths: innovation and new technologies, which are an opportunity to accelerate processes such as energy efficiency and decarbonization, which are essential for we can go through the delicate scenario that we are observing,” he says.
What is the situation in Latin America?
Argentina has the second largest shale gas reserve in the world, however, the existing limitations in the evacuation capacity prevent a greater increase in production. For this reason, gas is imported during the winter, when there is a peak in demand (by gas pipeline from Bolivia and LNG in ships from other countries). Of the US$1 billion that was spent in 2021 to acquire foreign gas, it could now go up to around US$7 billion, if the upward trend in oil and gas prices continues due to the conflict between Russia and Ukraine. In this framework, there are doubts related to the supply of all the gas that the country needs in winter, given the lack of foreign currency and the strong competition for this resource in the world.
Brazil registered a peak in its importation as a result of the increase in gas-fired electricity generation as a result of the water crisis, due to the attempt to preserve the levels of the country’s hydroelectric reservoirs. According to data from the Ministry of Economy, Brazil imported approximately 12Mt of gas in 2021, almost double the 6.2Mt of the previous year. With the impact of the conflict between Ukraine and Russia, in the current year the country still has the need to import gas.
In Colombia, among the inputs demanded by the steel industry, energy registered a growth of 5.8% in the accumulated of this year, compared to 2021. An increase in generation is expected accompanied by a rise in demand of energy, in line with the advance of the GDP. In addition, the fragmentation of the political scene in the face of the presidential elections is deepening. Mechanical and household machinery are the sectors that drive the demand for steel. The first of these includes political uncertainty, since the increase in rates will limit private investment this year, which will also be reflected in the production of machinery. The second sector is impacted by inflation and the increase in rates will moderate the growth of private consumption (due to the deterioration of families’ purchasing power), negatively affecting the production of equipment for domestic use. The construction sector also stands out, with incentives for home purchases, and the automotive sector, with moderate growth and a downward bias, due to auto parts supply problems related to the conflict in Ukraine.
Mexico is one of the many countries whose need to import natural gas has increased in recent years as it has replaced the use of other dirtier fuels for electricity generation, such as coal, fuel oil or diesel. for said fuel. 72% of the country’s gas supply is imported, coming almost entirely from the United States. Last year, Mexican imports of US natural gas expanded by 7.2%, reaching a record level of 5,950 million cubic feet per day on average (mmcfd), but they represented a decreasing proportion of US exports, which makes it more complex your outlook for better prices. In the framework of the armed conflict Russia/Ukraine, the United States is expected to become the largest exporter of liquefied natural gas in the world in 2022.
What can countries and governments can do?
In the medium term, that is, until 2030, it is essential to value national energy production to avoid dependence on foreign markets, promote cooperation among Latin American countries, increase the share of renewable sources in the matrix energy, use natural gas as a transition fuel and continue developing energy efficiency programs taking advantage of the technological revolution and digitization.
For this, it is necessary to have predictable incentives and rules in favor of the development of renewable energies by governments, as well as competitive natural gas rates to maximize the competitiveness of the energy matrix, in addition to public financing. and private to promote the technological leap and energy efficiency.
Source:Alacero
