LPG in Brazil: demand will outstrip supply

Friday, February 24, 2017

Accenture's senior adviser Phillipe Bize spoke to BNamericas about the recently launched study on Brazil's LPG market. Its main takeaway is that LPG demand will increase above the available supply by 2025, which means distributors will have to invest more in infrastructure and imports.

In this interview, Bize explains how Brazil could deal with the possible scenarios of LPG supply and its competition with piped natural gas.


BNamericas: Accenture has recently launched a study about the LPG market in Brazil, in which one of the main ideas is that demand will increase above the available supply of LPG by 2020 to 2025. What indicated this trend?

Bize: We have created two possible scenarios. In the most aggressive one, we have used [Brazil's national energy research company] EPE's forecast for LPG consumption. In a second scenario, we have used a softer approach, because we believe EPE's forecast is too optimistic. So, in the lighter forecast, the growth of the industrial LPG demand was tied to the growth of the economy, based on GDP. The residential growth scenario is based on the IBGE [Brazil's national institute of statistics] population projection.

In 2015, LPG consumption in Brazil has totaled 7.5 tons per year. In the aggressive forecast, we believe demand could reach 9.2 tons of LPG per year by 2025; in the softer one, it could get to 8.2 tons of LPG per year. This study was made at the request of Sindigas, the union of the LPG distribution sector, which means we were cautious with the forecasts and also that we focused more on the short term.

BNamericas: The study also points to a possible increase in imports, which should be between 1Mt/year and 2.7Mt/y of LPG, depending on the scenario, by 2025. What is the reason behind this difference?

Bize: The difference is mostly due to the delivery of Petrobras' infrastructure projects within the stipulated time or behind schedule. For the LPG market, these projects are mainly refineries and natural gas processing units. We have a more extreme scenario, which considers the high demand forecast by EPE and the backlog of Petrobras projects. In this case, the import of LPG by 2025 would be around 2.7Mt/y. On the other hand, we have also considered weaker demand and projects coming on time, and the result would be 1.1Mt/y.

We are not even considering that Petrobras won't deliver its projects, as it has in fact already happened. Structures such as Rnest and Comperj refineries have already delayed before, and the LPG production depends on this. In addition to that, Petrobras has no longer invested in new structures, and has already asked the distributors to import and do cabotage. This requires a large volume of investments. At the same time, the demand for LPG will increase.

BNamericas: Has the study taken into account that LPG is being displaced by the input of piped natural gas due to the expansion of the distribution network?

Bize: Yes. In fact, EPE's scenario already takes this into account, punctuating the progression of the natural gas network. The point is that the speed expansion of the pipeline network expansion is not so fast. LPG is very present in the residential consumption of the lower classes, where there is no available gas pipeline network. Because of that, LPG has become extremely important because there is no substitute. Brazil has not efficiently covered its territory with gas pipelines for the past 50 years, so I think it will hardly happen in the next 10 years. Since our forecast goes until 2025, this factor has not had so much influence.