Monday, 31 October 2016

Micro Level Trends – Brazil's Automotive Sector – “Brazil 66”...Sixty Six Years of Economic Power Lifting (Part 4.4.1)

Illustrated thus far has been an indepth review of the macro backdrop and micro economic dynamics of the prime issues and agents respectively behind and within the Brazilian automotive sector.

As seen, the drive for national economic development has been intrinsically linked to both outward -facing global trade and inward-facing self reliance, successive advisors and governments seeking to best balance the country's own national and regional development progress, critically promoting suitable industrial learning and associative technological prowess when deemed necessary.

5. Indigenous Development – Technologies

Transport Fuel :

As a commodity and agriculturally rich nation, ever since the introduction of the internal combustion engine the scientists and thought leaders of Brazil had been frustrated that like the imported vehicles, the fuel used to operate those trucks and cars was likewise imported.

It was deemed irrational that Brazil's foreign trade was largely premised upon the exportation of low-value food-stuffs and minerals, and low US$ per tonne, whilst importing both high cost finished goods and highly processed / refined oils.

This imbalance started to shift in the late 1940s with the beginnings of the national oil state company Petrobras.

However, the production of a highly flammable and (thus, when contained), very explosive liquid through a filtration and or distillation process had been known ever since the Mayans and Aztecs, primarily derived from the sugar-rich pods and beans of mid-altitude shrubland plants (the agave and mezquite best known for tequila and mesquite alcoholic drinks). As required such 'preparations' were used to both provide a source of light, by soaking a candle wick in the liquid (akin to a European a tallow candle from animal fat) and when ingested for euphoric purposes during social celebrations.

This knowledge had been absorbed by the European intelligensia by the early 19th century, and by the late 19th century the impressive scientific research establishments and associated laboratories of Germany and the US had used the similar whisky and bourbon filtration and distillation process to create a very stable and critically repeatable output.

However, unlike the bartering methods of the Mayans and Aztecs for such basics, the basic costs and time-scale of the process were high and lengthy compared to the specific energy output received. Instead the refining and distillation efforts were directed to the high energy density of the new 'black gold': the underground, typically deep sub-strata oil.

Moreover, deep-drilled oil was glutinous and composed (quite literally) of a range of chemicals that could each be refined to produce varying degrees of purity, relative to required cost and required character. In short, oil had far greater inherent 'added-value' given the range of applications than a highly purified alcohol.

Thus by the early 20th century it was believed, and globally propagated by the far advanced West, that grain and bean was best directed purely as foodstuff.

This allowed many producers before even the first 'major' that was Standard Oil to provide a wide range of B2B and B2C 'distillates', from glutinous grease for machine barings and shafts through to notionally 'clean-burn' lamp oil to of course the prime support behind the global introduction and widespread adoption of the motor-truck and motor-car.

However, whilst it embraced the advantages of “foreign oil” to power the increasing numbers of Fords, Dodges, Chevys on roads and John Deeres, International Harvestors and Fordsons in the fields in those early decades of the 20th century, Brazil well recognised that its massive agri-business could and should off-set this foreign monopoly on transportation fuels.

Doing so would help provide national independence by adding to internal economic advantage, and now the often massive tracts of fallow land – often deliberately left fallow to reduce grain supply and so support prices and profitability – could be utilised to the gain of land-owner, land-workers and the country at large.

Known for years was the fact that Sugar Beat and Sugar Cane sourced sugars could be turned into alcohol, land workers having long mastered the process for alcoholically fuelled celebrations, for the cleaning of open wounds, and use as a combustible aid, such as scorching ground stubble after harvest.

Indeed, and unsurprisingly, as soon as petroleum powered mechanised tractors and trucks were imported the volumes expensive petrol and diesel would be 'stretched-out' by adding varying percentages of home-brewed grain alcohol.

[NB here in the UK, with its then very pro petroleum stance, the far smaller scale, 'problem' led to the introduction of far cheaper 'red-diesel' for farmers, for field, track and yard use only and prohibited for road transport use].

However, quite obviously for successive Brazilian governments this ongoing trend of mixed substitution was anything but a problem, and so hat internal knowledge would be put to broader and far more substantive use as part of official economic growth policy.

The more remote NE region officially first led the way in the 1910s when because of petroleum supply problems and the advantageous abundance of land and sugar cane, it was decided that local vehicles should be run on derived ethyl alcohol, the first processing plant created in 1927 and located in Algoas. The fuel used was a mix of primarily ethanol and quarter quantity of ethyl ether.
By the 1940s hundreds of trucks, cars and small rail locomotion engines were being run on the substance.

It was mandated in 1931 that 5% of sold petroleum would consist of ethanol, and to support this decision 54 processing plants built by 1945. Through the 1930s supply and use of the mixed fuel rose sharply, accounting for 7% of purchase by 1937.

Although largely neutral within WW2, the oil-wars of the Middle East and North Africa, and attacks on inbound oil ships illustrated that foreign sourced oil could all too easily become restricted; so maintaining belief in the notion of self-supply. This again boosted production and in 1945 10% of sold fuel across the country was 'alcool'.

However, the post WW2 period was that of cheap international oil and petroleum, so massively affecting the raison d'etre for self-supply; thus official production of ethanol dwindled through the 1950s and 1960s, though it was distilled unofficially and used to boost the octane rating of stored stale petroleum in deep country regions.
As previously described (regards the reasons behind the ubiquity of the VW boxer engine) for many years Brazil was 'technology-trapped' because of the lower grade quality of more affordable imported petroleum, which in more remote regions might be stored in official and unofficial re-fueling stations for months given the low usage rates and long time gaps between tank refills. Thus the already low-grade fuel would inevitably deteriorate further so creating problems in use, from carburettor blockages (because of chemical lamination in the tiny holes of venturi 'jets') to heavy 'knocking' of the engine (because of the low lead content), especially when under the strain of an invariable heavy load. Home-brewed 'alcool' helped overcome these conditions and was applied when available.

So even in the era of cheap oil, ethanol never truly disappeared; with well recognised advantages.

It was officially recognised that resurgence of a domestically grown, processed and supplied ethanol based fuel supply base – critically reaching from coast-line to deep inland - would help alleviate the two previously aforementioned issues:
1. Fuel Security (reducing foreign oil reliance)
2. Overcoming the 'Technology Trap'.

The first item is self explanatory but the second related to the assistance of better engine development in terms of power and some emissions pollutants, since ethanol typically combusts quicker than petroleum. When designed properly with adequate valve timing/overlap could potentially revolutionise the use of the internal combustion engine.

Vitally ethanol could potentially be the foundation-stone to a sustainable bio-fuel based eco-system.

Throughout the 1950s and 1960s government laboratories had been in a small way exploring, experimenting and improving a sugar-cane and sugar-beat refining process. When the optimum formula in terms of chemical compounds, cost, quality and production volumes had been identified the forward-looking central government set about the 'fall-back planning' for a potential re-introduction across the national fuel network. Yet more exploration was to come later.

This fall-back position came to the fore and was deployed with the global consequences of the 1973 Arab-Israeli War and the oil producing nations' decision to drastically reduce supply, the “Oil Crisis”.

The enacted policy in 1975 was titled 'Programa Nacional do Alcool' with the high ideal (never met) of providing 100% of transport fuel needs produced within Brazil. A resurgence in scientific experimentation resumed, and having already mastered the ethanol solution, new avenues were explored with other fermentable carbohydrates offering up both gases and liquids.

The notion was that the country would be provided with both the hybridised cheaper mixture of petroleum and ethanol for mass use, and the retained availability of pure higher-priced 'better graded' petroleum as necessary for more sensitive engine types. This came into official being only one year later in 1976 when it became compulsory that blended fuel ('alcool') was made available nationwide; under the 'Pro Alcool' campaign.

The major vehicle manufacturers were tasked with recalibrating current engine families already present in the country and the task of developing dedicated and optimised 'Alcool' engines. To try and gain a publicity lead and possible market share lead, Chrysler's local Dodge operations created the first 100% (E100) ethanol powered engine, and installed it into its local product, the 1800 (a Dodge badged UK originated Avenger).

Thereafter in May 1979 a fleet of two-thousand E100 vehicles was tested to 'de-bug' potential problems, however although large mileages were covered, the time-frame was small, and this appeared more a PR exercise to convince the general public and so consumer marketplace.

But it was FIAT with the 147 that marketed to the general public a fully E100 dedicated car from its production line, and won applause for doing so. Other manufacturers followed FIAT's lead and adapted standard ICE engines to suit the combustion characteristics and exacerbated in use wear and tear issues from such a pure and so rich use of ethanol.

This was set at various levels to begin with, between a minimum of 10% (E10) to maximum of 22% (E22) between 1976 and 1993, this allowing various newer types of more efficient and tunable IL4 engines to steadily replace the ubiquitous VW 'boxer-4'. Thereafter, the increased adoption of electronic ignition and fuel injection and altered ancillaries meant that engines could be yet further refined to accept higher levels of 'alcool', thus after 1993 the blend was officially set at 22%.

Such technical advancement, with later additions such as intelligent ECU's and gas-flow sensors provided the basis for the Brazilian 'Flex-Fuel' revolution as of 2003 onwards which has now become engrained into many motorists' everyday lives.

However, legislated flexibility was given at state level to take account of local market differentiation, in terms of ethanol supply, petroleum supply, market pricing fluctuations and general local income levels; and so variations of 20% (E20) to 25% (E25) prevailed.

To increase the ethanol volume mix – and so continue to wean off of higher worldwide petrol levels – the standard was set at 25% in 2003; coinciding with the availability of the first productionised 'Flex-Fuel' cars (VW Gol and Chevrolet Corsa) and with the popularity of these cars prompting a similar manufacturer and consumer movement with other marques, with 12 brands offering 'Flex-Fuel' products by 2010.

But periodic ethanol shortages - so raising the commodity's price and thus negating policy intentions - meant that greater flexibility had to be put back into the system, with a prescribed low limit of 18% (E18) when necessary. Nonetheless by 2015 the official mix had been reset from 25% to 27% (E27).

The present question is how recent record low worldwide oil prices might affect the 'Pro-Alcool' policy, yet history dictates that even with greater flexibility on ethanol policy as a result, Brazil will invariably maintain its self-supply stance with greater correlation to the BR(I)C, broader EM and entrenched OPEC providers of fossil-based global oil.