With electrical energy rationing in Argentina
having stretched to three months-bringing down steel production
and overall economic growth-the alarm bells are ringing
throughout Latin America.
Chile, partly dependent on now-uncertain
supplies of imported fuel-including natural gas from
Argentina-and which is facing a water supply shortage to boot,
has acknowledged that energy problems threaten the continuation
of its recent buoyant economic growth rates.
Venezuela is having difficulty implementing
its ambitious South American gas pipeline project, possibly
because of political misgivings on the part of its Latin
Prices of Bolivian natural gas have
skyrocketed since the government nationalized its oil and gas
industry in May 2006.
And a report from Brazilian think-tank
Instituto Acende Brasil, published in early August, said that
the probability of Brazil facing a new round of blackouts by
2011 is now up to 32 percent.
The warning bells grew louder in Brazil with
the revelation that oil and gas producer Petrobras SA has
insufficient natural gas to honor a contract with local thermal
power stations. In addition, initial free-market auctions in
late July to sell sugar-cane-based biofuel aroused scant buyer
All this follows a natural gas supply and
pricing crisis in Mexico, which during the past two years has
hit hard such consumers as the country's direct-reduced iron
(DRI)-based steelworks, including the ArcelorMittal (former
Imexsa) slab plant, whose output cuts were held partly
responsible for the past year's increase in slab prices. The
natural gas crunch would now seem to be moving south through
Latin America as more new projects are planned to use the
commodity, despite the continuing precariousness of regional
supplies and pricing structures.
Brazil's DRI-based Ceara Steel is a case in
point. After serious and apparently unsuccessful lobbying of
Petrobras for a natural gas price discount, the joint venture
of South Korea's Dongkuk Steel Mill Co. Ltd., Italy's Danieli
& C. SpA and Brazil's Cia. Vale do Rio Doce (CVRD)
reportedly is now considering a technology change away from DRI
because it may be the only way the project can go ahead.
Argentine steelworks Acindar Industria
Argentina de Aceros SA has taken its DRI plant out of action
during the country's energy crisis. This has allowed the
company, part of ArcelorMittal, to carry out the necessary
engineering work on the plant for the steelmaker's current
expansion. However, the question remains as to how the new
1.75-million-tonne-per-year capacity at the DRI and
electric-arc furnace works will fare, given the uncertain
future of energy supplies in Argentina.
Brazil's complex energy question also is
viewed as a major reason why the country is now attracting new
bauxite and alumina projects-for instance, the major
7.4-million-tonne-per-year Hydro Aluminium AS and CVRD project
announced in July-but building relatively little new primary
The same goes for copper in Brazil. New
mining and concentration activity grows apace, but smelting is
limited to a sole plant, Caraiba Metais SA, whose planned
expansion is progressing slower than expected.
Observers could be forgiven for noting that
the grim energy panorama throughout Latin America may condemn
the region to continue to be an exporter of mineral commodities
rather than energy-intensive finished metal products.
Governments are doubtless learning energy
management tactics from the recent experiences. Argentina has
been criticized for allowing power cuts to impact industry,
commerce and households alike, even affecting the distribution
of bottled butane gas for household cooking in what has been
one of the country's most rigorous winters.
What has happened in Argentina is recognized
as being the result of short-term populist measures, unsuitable
for a sector like energy where long-term planning is essential.
In an attempt to improve the lot of the majority after an
earlier period of hyperinflation, Argentina President
Néstor Kirchner froze the nation's electrical energy
tariffs, discouraging new private sector investments in
generation and distribution.
The Brazilian blackouts also were attributed
to lack of sufficient investments in power generation, again
because of the existence of a more-controlled market under
former President Fernando Henrique Cardoso, which has been
replaced by a free market under Lula's regime in an effort to
encourage new sectoral investments while at the same time
reducing or at least stabilizing energy costs for
Lula is now anxious to speed up three big
hydroelectric projects in the Amazon-despite Brazil's
strengthening green lobby-in a move to avert the threat of new
blackouts. The concession for the first of these, the
3,300-megawatt Santo Antonio project in Rondonia state, is set
to be auctioned in October and is expected to attract
significant international and local investor interest. This
should be followed by the auction of the concession for the
3,100-MW Jirau project, also in Rondonia, and the first phase
of the 11,000-MW Belo Monte project in Para state, the most
controversial as it would be sited partly in indigenous Indian
Bolivia, Chile, Colombia, Ecuador and Peru
announced in late July that they will undertake a feasibility
study into regional energy integration based on construction of
a gas pipeline network with international investor support.
One thing is for sure If copious new
investments in power generation and distribution do not
materialize almost immediately, medium-term energy supplies may
be insufficient to support the continuing upturn in economic
growth rates throughout Latin America, hitting
capital-intensive metals industries head on.