To hold prices, Brazil exchanges biofuels for oil derivatives

The recovery of fuel sales after the pandemic in Brazil was dependent on imports and more polluting, a reflection of the government’s effort to hold back the price hike caused by the rise in international oil prices.

With the gasoline tax cut, ethanol consumption in 2022 is the lowest in the last five years. Biodiesel sales were brought down by the reduction in mandatory blending into diesel and fell back to 2019 levels.

“We are moving backwards. Brazil started to import more fuel and export jobs and currency”, says the former director of the ANP Luiz Augusto Horta. “It was a botched, wrong intervention, which only favored gasoline and diesel.”

According to data from the ANP (National Agency for Petroleum, Gas and Biofuels), the consumption of liquid fuels reached 100.8 billion liters in the first ten months of 2022, breaking a historic record.

The high is driven mainly by diesel consumption, which was around 52.9 billion liters in the period, also a record. Gasoline sales also rise, recovering pandemic losses, but are still below 2017.

In the case of diesel, however, the records have not boosted sales of biodiesel, as the government has been keeping the mandatory blend at 10% to contain the rise in fuel prices. By the original schedule, it should have been at 14%.

In the first seven months of the year, latest data available from the ANP, biodiesel sales in the country totaled 3.6 billion liters, the lowest volume since the 3.3 billion in the same period of 2019, when the mixture was 11%.

The reduction in the blend was decided at a time of rising biodiesel prices and, in November, the Ministry of Mines and Energy announced that the 10% ratio will be maintained until March 2023, so that the new government can decide to resume the original schedule.

“There is a business sector that responded to the government’s request for decarbonization, for a greener, cleaner, more sustainable fuel matrix and this was discarded”, says the chief economist of Abiove (Brazilian Association of Vegetable Oil Industries).

According to him, investments in recent years already provided for an increase in the mixture of up to 20% and, therefore, the sector works with an idleness of 50%. The issue of prices, he argues, was a one-off and today biodiesel has a cost equivalent to that of imported diesel.

In the case of ethanol, the loss of competitiveness in relation to gasoline dropped sales to 12.9 billion liters between January and October. It is the lowest value since 2017, according to ANP data. The market was occupied by gasoline, which had the best sales volume since that year: 34.8 billion liters.

Considering the product sold at service stations and the volumes mixed with gasoline, ethanol represented, in the first seven months of 2022, 47.5% of fuels consumed by light vehicles in the country. In the four previous years, the volume of ethanol was greater than that of gasoline.

Unica (Sugarcane Industry Union) says that, in addition to the loss of competitiveness in the second half, the crop failure in 2021 also hurt sales at the beginning of the year, when ethanol prices climbed.

Production, says the entity, is accelerating at the end of the year, when the product is no longer so competitive due to gasoline tax cuts.

The replacement of renewables by fossil fuels has implications for the Brazilian trade balance. With less biodiesel and increased sales, diesel imports soared in the first half, reaching 7 billion liters, up 31% compared to 2019, before the pandemic.

The new government will have the challenge of equating the question, say the interviewees. The public sector, says Unica, “needs to guarantee a legal and regulatory framework that recognizes the benefits of renewable energies and offers stability and predictability for investments.”

The coordinator of the energy area of ​​the transition team, Maurício Tolmasquim, says that there are still no definitions on the subject, but that the idea is to stimulate the consumption of renewable fuels.

“Brazil is taking a strong position on the issue of energy transition and, without a doubt, biofuels are part of this transition. So the idea is to stimulate, but there is the issue of prices, so we have to take a better look at the situation”, he ponders.

He praises the decision to extend the deadline to evaluate the biodiesel blend. “As there is a controversy between the transport sector and biodiesel, it is prudent that the new government has a deadline to take stock of the situation.”

Henrique Jager, from Ineep (Institute for Strategic Studies on Petroleum, Natural Gas and Biofuels), says that the scenario reflects a series of mistaken policies. “On the one hand, the lack of a robust program to change the country’s transport matrix, dominated by road transport”, he says.

On the other hand, he continues, the “almost abandonment” of the biodiesel program in Brazil, the lack of a policy of minimum stocks of ethanol to reduce volatilities, subsidies to fossil fuels and the lack of incentive for the fleet powered by electricity.