HLPFI’s last South America project logistics report suggested that 2023 would be a more stable year. That proved to be somewhat over-optimistic – but the community is keeping its feet amid turbulent currents, writes Megan Ramsay.
“The project logistics scenario in South America was, is and will be affected by political turmoil, as usual,” summarised Alejandro Porrua, managing director of Altius’ project division.
Brazil is a case in point. One year on from the last presidential election, investors are still concerned about the country’s fiscal situation and uncertain about president Luiz Inacio Lula da Silva’s intentions.
“The market is afraid that president Lula will interfere with the central bank, manipulating interest rates, which could speed up inflation and make new investments difficult,” said Thomas Weitmann, director of Brasil Projects.
Interest rates are still high in Brazil but they are coming down, as the central bank approves of the government’s current promises, he said. “This is a positive sign, but if the decrease of the interest rate has no real foundation, things will go in the opposite direction and inflation will increase.”
Weitmann added: “If the government spend more than they gain with taxes, etc, debt will increase and investors will definitely stay away for fear of non-payment.”
South American projects outlook
In this context, the outlook for new projects in Brazil is somewhat hazy. Nor is this an isolated case. The latest development in South American politics at the time of writing was the election of Javier Milei as Argentina’s new president.
Argentina is struggling with triple-digit inflation and a USD43 billion debt to the International Monetary Fund and, in August, Mr Milei promised to reform the government, saying: “The first thing we have to understand is that the state is not the solution: the state is the problem.”
When taking power on December 10, he took a series of steps to cut public spending by 3 percent of GDP. Among those steps were the dissolution of nine of 18 government ministries, subsidy cuts, massive privatisation, and labour reform laws. Shares in state-owned oil company Yacimientos Petroliferos Fiscales (YPF) – in charge of the Vaca Muerta shale gas and shale oil reserve – soared when Mr Milei spoke of fully privatising the firm, for instance, although it is as yet unclear whether this move will go ahead. However, Mr Milei’s lack of political allies has cast doubt on his ability to enact his radical reforms, fuelling uncertainty among investors. On January 24, Argentina’s trade unions planned to strike nationwide.
“At Altius, we continue providing logistics services for the revamp of the YPF refinery located at Luján de Cuyo, Mendoza,” Porrua said, adding: “While Argentina remains plunged in the mist of uncertainty… economic expectations for Chile, Peru and Colombia are positive, although they still have a long way to make up lost ground since the pandemic.” In Bolivia, Altius has delivered the main equipment for the huge Mutun steel complex that is being built in Santa Cruz province.
Modularisation is becoming an important methodology for construction in the world, and many loadouts of big modules (over 3,000 tonnes) are constant for us in Brazil. – Luis Carvajal, Mammoet LATAM
Striking a similarly mixed note, Luis Carvajal, Mammoet LATAM north sales manager and general manager Colombia, observed that Brazil and Chile, for instance, showed a significant increase this year in loads associated with mining, gas and onshore wind, while in northern Latin America, Central America and the Caribbean, delays to energy projects had a negative impact on the project logistics sector, he said.
Regional growth in infrastructure and mobility
Growth in the region is coming from various quarters, including infrastructure and urban mobility, as well as construction, with a strong focus on ports, airports and highways throughout South and Central America and the Caribbean – critical for enhancing regional connectivity and economic growth.
Sanitation projects, meanwhile, are becoming increasingly prominent, said Alberto Morante, chartering director Americas at Bertling Logistics. A notable example is in Brazil, where the largest current infrastructure contract is in this sector. Rio de Janeiro’s water and waste services are undergoing major investments, amounting to BRL33.5 billion (USD6.7 billion), under 35-year concession contracts with Aegea and Iguá Saneamento.
Additionally, São Paulo state plans to privatise its water utility, Sabesp (one of the largest in the world), in 2024.
Power generation is another source of work for project specialists like Mammoet. “Energy projects in the Dominican Republic are a highlight due to the big support from the government and the innovative transport solutions we have been providing for the Manzanillo and Laesa power plants,” Carvajal said. “Modularisation is becoming an important methodology for construction in the world, and many loadouts of big modules (over 3,000 tonnes) are constant for us in Brazil.” He added that company has supported a Colombian client at a port construction project on the northern coast.
But project work in Colombia is quiet on the whole. Andrea Manrique Moreno, managing director of Bogota-headquartered Anker Logística y Carga, said: “In terms of outsize cargo, demand is extremely low. A great deal of investment has been withdrawn from the country and we have incomplete execution of state budgets, which means many projects are not being launched and there is no flow of project loads.”
Anker has moved gas processing compressors and spare parts for the oil and gas industry over the last 12 months.
Seawater desalination uptick
With climate change, drought, population growth, industry and the energy transition driving the need for more water, desalination of seawater is becoming crucial in supplementing or replacing traditional underground and surface water sources. This technology is particularly significant in regions facing high hydrological stress, a situation projected to intensify in Latin America.
Chile is the leader in Latin America in terms of desalination capacity and the project pipeline – driven primarily by the mining sector this past decade. However, the focus is now shifting towards using desalination for human water consumption and the development of multi-client facilities serving sectors like mining, urban areas and agriculture.
“Peru and Mexico are next in line with significant investment pipelines in desalination,” Morante said. “Mexico already has several large desalination plants, while Peru recently inaugurated its first one. Despite technological advancements reducing the cost of desalination, the high consumer price remains a concern, especially for projects aimed at human consumption.”
Nevertheless, Brazil is progressing towards establishing its first large-scale desalination plant, intended to supply water to the city of Fortaleza, and Chile is planning its first public-private partnership for a desalinated utility water supply.
Finally, the burgeoning green hydrogen industry in Latin America, particularly coastal wind-powered hydrogen projects, is likely to increase the demand for desalinated seawater, Morante pointed out.
Another shift has occurred in the mining industry. In Brazil, this sector has stalled with the change in government after booming under ex-president Jair Bolsonaro, although Weitmann said there is demand for metals like nickel and gold, and there are now six projects in Brazil’s lithium valley.
Morante believes that “the game has changed” for the mining sector. He explained: “Over the past two decades, the global mining industry has faced escalating pressures due to increased mineral demand, primarily driven by China, and heightened attention from local communities, government entities and environmental organisations. This scrutiny has often resulted in project delays or cancellations, a trend that has intensified recently amid rising demand for raw materials essential for decarbonisation efforts.”
In copper-producing Chile, Peru and Mexico, for instance, production has been diminishing over the last few years due to political, permit-related and environmental constraints.
But the narrative has shifted in the past few years as metals like copper, lithium, cobalt, nickel and rare earths have been recognised as critical for combating climate change.
“Consequently, the industry is exploring new business models like ‘mining-as-a-service’ and community associations to adapt to the complex dynamics between mining companies and their stakeholders while increasing the production of minerals crucial for a decarbonised economy,” Morante said.
Peru and Mexico are next in line with significant investment pipelines in desalination. Mexico already has several large desalination plants, while Peru recently inaugurated its first one. – Alberto Morante, Bertling Logistics
The industry is also changing its approach through environmental, social, and governance (ESG) standards. Latin American countries are adapting ESG frameworks from Europe and the USA to create local taxonomies. Colombia and Mexico have already published their green taxonomies, while Brazil, Chile, the Dominican Republic and Uruguay are developing theirs.
Sustainable finance
The United Nations has introduced a common framework for sustainable finance taxonomies in the region to promote consistency and facilitate cross-border investment in decarbonisation efforts.
José Luis Vidal, chairman of WV Logistics and Services, noted that in his capacity as member of the advisory board of the Brazil-Texas Chamber of Commerce (BRATECC), he is part of a discussion around the energy transition, communities, and the mining and oil and gas sectors.
Indeed, Vidal will chair BRATECC’s new mining committee, which will initially focus on “intensifying the search for synergies with the oil and gas sector, at this important moment in the world economy due to energy expansion, new technologies and processes in line with ESG premises for the development and implementation of green and sustainable mining”, the chamber said.
In Morante’s view, the outlook for renewable energy generation in Latin America in 2024 is highly positive, with a continued expansion in capacity, predominantly through solar projects such as those in Chile and Peru.
Onshore wind projects are consistently on the rise in Brazil. Peter Sjelle, chartering manager ECSA, BBC Chartering São Paulo, expects this sector to receive a further boost in 2024. “We have been and are closely following the improvements of wind energy parks in Argentina and Brazil, already having been involved in a lot of wind equipment transportation both on import and export,” he said. “It will be interesting to see what the next years will bring as the projects planned will require a lot of multipurpose vessels to attend the needs of our wind turbine clients for local projects.”
Many wind projects in the northeast and the south of Brazil have been under negotiation and will move forward, with even more in the bidding stages.
The International Energy Agency (IEA) said in its recent Latin America Energy Outlook: “At a time of rising geopolitical uncertainty and accelerating energy transitions, an extraordinary endowment of energy and mineral resources, as well as a history of clean energy leadership, positions Latin America and the Caribbean to play an increasingly influential role in the global energy sector.”
The IEA added: “Renewables, led by hydropower, generate 60 percent of the region’s electricity, twice the global average, while some of the world’s best wind and solar resources can be found [there]. Use of bioenergy is widespread across the region, and it is a major exporter of biofuels.”
Latin America and the Caribbean hold about 15 percent of global oil and natural gas resources, while the region is also “highly significant for the production of minerals that are essential components in many of today’s rapidly growing clean energy technologies – with around half of global reserves of lithium, and more than a third of copper and silver reserves. The region’s clean electricity supply lays the foundation for the sustainable mining and processing of these materials.”
There is also widespread interest in developing green hydrogen. Most governments in the region have established formal entities to promote its development.
Although still in the early stages and with business cases largely hypothetical or pilot-based, green hydrogen is increasingly considered a permanent fixture in the energy sector, Morante said. Notable projects include synthetic fuel production using green hydrogen in Chile’s Magallanes region.
LNG is also seeing strong investment momentum in Latin America. Traditional fuel sources also remain important. For example, Altius’ Porrua pointed to Guyana’s “shocking” economic growth – close to 25 percent last year – due to the discovery of Latin America’s third-largest petroleum reserves. He said: “Some think-tanks state that Guyana will be the last country touched by the oil wells before the beginning of the end of the fossil fuel era.” Bertling, meanwhile, set up a joint venture with a local Guyanese partner in 2023 and opened its own Suriname office in 2022 to serve those countries’ growing energy sectors.
Barbados agreement
“Also related to the oil business, another topic to be followed up this year is the so-called Barbados agreement whereby Venezuela’s government and opposition set the framework for a presidential election, thus removing energy sanctions,” Porrua said. “Some major oil companies have already announced new investments in the country.”
Over in Brazil, meanwhile, there are mixed reports regarding state-owned oil company Petrobras. Sjelle said oil and gas is “the main driver” of project business in Brazil, with Petrobras expanding contracts and the decommissioning of old platforms – which will bring work for the project cargo community.
He also noted that Equinor and Shell are in talks to deploy more FPSOs in Brazil, which will create increased shipyard activity; Petrobras has already confirmed 10 new FPSOs.
“In addition, oil from pre-salt exploration will induce modernisation of refineries, which have to be adapted to match the different specifications of the oil,” he said. “It is safe to say that Petrobras will be a driving force for the future in Brazil with 1.4 million employment opportunities.”
But Weitmann remarked: “The Abreu e Lima refinery in Suape is still on hold. The expansion of Comperj [Rio de Janeiro petrochemical complex], substation and upgrade are still on hold. Toyo did complete the gas station at Comperj, but the P-82 FPSO platform is still on hold. There is no offshore wind power in sight although this was a promise one year ago.”
Petrobras has announced investments of USD102 billion to come between 2024 and 2028, mainly in renewable energies and decarbonisation.
At the same time, the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) has confirmed that the contentious issue of oil exploration in the equatorial Amazon will be decided at the beginning of 2024. The government department has previously denied Petrobras permission to drill at the mouth of the Amazon.
Political issues and economic constraints will continue to be a major factor in the development of Latin America’s project sector in the coming years. It is likely that high interest rates will keep financing costs high across the region, limiting economic expansion – although some, like Morante, expect some easing of inflation and a modest improvement in GDP in 2024.
He is particularly optimistic regarding Brazil’s potential. There, he said, “we foresee unprecedented investments in construction and infrastructure”, particularly in the north of the country. Weitmann added that this is already driving expansion in cement production.
In terms of heavy lift cargo, Brazil’s ports and facilities are sufficient, in Vidal’s opinion. But he added: “We do not have railroads for heavy lift cargo [they are used more for commodities such as iron ore and soya]. There is a lack of investment in our railways; if investments are made though, there will be a lot of equipment and locomotives to move. New mines would also need new equipment, as would new ports – and it is a circle: one will bring the others.”
Brazil exports some locomotives, but for heavy lift cargo the main movements comprise imports for renewable energy projects as well as the odd transformer – although these are produced in Brazil too.
Oil from pre-salt exploration will induce modernisation of refineries, which have to be adapted to match the different specifications of the oil. –Peter Sjelle, BBC Chartering São Paulo
The main transformer manufacturers with facilities in Brazil – Toshiba, Siemens, WEG, PROLEC and Hitachi – have full orderbooks for the local market, which is stable, and increasing exports. This sector is booming, especially in terms of exports to the USA.
Fertiliser projects
In terms of international links, Weitmann said: “Due to the crisis with Russia, which will affect the fertiliser supply from them, we see already four fertiliser projects, which would partly substitute the fertiliser supply from Russia. In general, agriculture is still the strongest area in Brazil and is seeing continued investments.”
China’s BYD Auto Co will soon set up in Camacary in Bahia state, using the Ford facility there to make fully electric and hybrid cars and batteries, and Great Wall Motor Co (also Chinese) will start production of electric and hybrid cars at its plant in Iracemapolis in the state of Sao Paulo on May 1, 2024.
The Barbacena thermal power plant will be executed by Toyo and GE. GE will also build another thermal power project, Azulao, up in Amazonas. Work on the Graca Aranha–Sylvania substation, and expansion of the Belo Monte hydroelectric dam transmission lines (requiring numerous transformers), will start soon.
Then there is the increased activity in oil and gas shipments both into and out of Brazil – XT equipment, risers, pipes, and cable reels – and mining equipment imports, which Sjelle anticipates will increase in the coming years.
Sjelle explained: “We expect to keep a steady number of vessels on both coasts to attend all our clients and their needs.” BBC Chartering’s multipurpose fleet includes vessels from 7,000 dwt to 25,000 dwt and with a lifting capacity up to 900 tonnes
“Further, we have taken steps to expand our activities in Latin America by adding a fleet of 40,000 dwt bulk carriers with box-shaped cargo holds. These will help us in serving the different clients in the mining, steel, agriculture, and cellulose industries with their specific transport needs,” Sjelle said.
Brazil optimism
Overall, Vidal feels 2024 could be Brazil’s year. “There is a lot of cargo to move – wind turbines and solar farms continue to be installed and hydrogen is a hot topic; therefore a lot of cargoes will come into Brazil.”
In addition, four new breweries are to be constructed, with equipment mainly coming from German and Dutch companies.
Elsewhere in the region, a boom in energy projects is expected in the Dominican Republic for 2024/2025, including some combined-cycle gas power plants and new onshore wind projects; onshore wind continues to advance in Central America and Peru; and in Colombia, energy projects are expected to begin, including the reactivation of wind projects that were suspended due to community and environmental issues, Carvajal said.
2024 could be Brazil’s year. There is a lot of cargo to move – wind turbines and solar farms continue to be installed and hydrogen is a hot topic; therefore a lot of cargoes will come into Brazil. – José Luis Vidal, WV Logistics and Services
These trends will likely continue in 2024, given the urgent demand for cleaner energy, while mining in Chile as well as infrastructure and new ports across the region (such as the one at Chancay in Peru, a promising hub for regional transport) are also positive areas.
Still, projects throughout Latin America will face challenges due to, for example, political uncertainties in Mexico, a radical policy shift in Argentina, slow permitting processes in Chile, fluctuating government support in Colombia, and political crises in Ecuador and parts of Central America.
Nor is the region immune to global trends and challenges such as digitalisation, the renewal of the workforce, the ageing multipurpose fleet, new IMO regulations and, of course, unpredictable demand.
In Manrique Moreno’s view, Latin America’s economic forecasts are unlikely to improve in 2024 and challenges such as inflation will be more severe. The only way to survive this economic cycle, she said, is for companies to continue to generate work and opportunities and to support industry, keeping the region’s economies moving.
Permitting processes
For South American governments, meanwhile, the priority must be to improve and streamline the regulatory and permitting processes, Carvajal said. He also called for tax incentives to stimulate foreign investment in the area.
He added: “South America could reactivate cooperation agreements for cargo transportation between its countries; having more double taxation treaties and benefits in import and export costs between Latin countries could improve project cargo logistics issues.”
