By Michael Herson

In Central and South America, the lines between initial sales of power generation equipment and subsequent maintenance services can be somewhat blurred. Many OEM distributors in the region engage in both tasks, with little natural division between their role and that of operation and maintenance providers, as you see in Europe. Where does this leave suppliers of natural gas engine oils?

It leaves them with plenty of opportunities – to knit close and lasting relationships, to differentiate their brands and products in the environmental, supply and performance areas, and ultimately to win market share. Thats what The Strategy Works learned in studying Latin Americas demand for natural gas engines and lubricants.

Building upon last years research into Europes market, the London-based consultancy conducted extensive interviews with more than 30 original equipment and engine manufacturers, operation and maintenance companies and gas engine lubricant suppliers around Latin America.

Researchers heard that end users are eagerly tapping the regions supplies of gas for their electricity needs, with many selecting natural gas-fueled, reciprocating engines in the 100 kilowatt to 20 megawatt range. Unlike national power grids, this electricity is used at or near the point of generation. The units can be installed quickly – sometimes in mere weeks – to supply mines and steel mills, cement, chemical and fertilizer plants, oilfields and refineries, plus hospitals, airports, data centers and other critical operations.

The increased availability of natural gas and/or other type of gases is opening opportunities in South America, points out Antonio Nava, general manager of power solutions, South America, at Cummins Power Generation. Gas-to-energy projects below 20 mW are more reliable and efficient compared with the electricity offered by the commercial grid. Among other projects, Cummins last year installed five 2 mW gas-fueled generator sets at the busy Port of Pecem in Brazils state of Ceara; two more assure standby power for a new commuter rail system in Salvador, in Bahia state.

Exterran, a Houston-based natural gas project engineering and design company with more than a dozen locations in South America, puts high expectations on its gas engine oil supplier. Its mandatory to have a gas engine oil partner to clarify doubts, offer training, oil sample analysis, make visits to the operation and discuss problems related to lube oil application, reveals Kamal Abi Farag, the companys maintenance manager in Brazil.

However, when it comes to the engine oil for such equipment, equipment manufacturers generally are reluctant to recommend a single brand, usually leaving it to the end customer to choose from a specified list. Many maintenance contractors regard OEM gas engine oil specifications as mandatory, confirms Emerson Cabral at Brazilian service provider Sotreq, which is allied with Caterpillar. Caterpillar sends us a datasheet with the specifications of additives and of the oil composition we must use, points out this product support manager. This composition is based upon Caterpillar oil.

Similarly, Carlos Silame, project supervisor at Cummins Brazil, highlights his companys special relationship with Valvoline. It is mandatory because without approval, in case of a catastrophic failure, equipment will not be covered by warranty. Valvoline is always the first option – and all treatments are made directly by Cummins.

All those interviewed are optimistic about the future, and interestingly they see even more potential for natural gas than for alternatives such as landfill or biomass gas. (In that respect the Latin American market differs from Europe.) The underlying reason for this is new gas field discoveries and infrastructure improvements, with optimism highest in countries with large natural gas resources such as Argentina.

Argentina has great potential due to its unexplored reserves [but developments] mainly depend on political reasons, comments Marcelo E. Martins, technical support and product line manager, at Axion Energy in Buenos Aires, ExxonMobil Lubricants distributor in Argentina.

There are also developments in Peru, where the government has recently invited tenders to extract natural gas from one of the countrys largest gas reservoirs, which will have a positive impact on the gas engines industry.

Wrtsil Brazils Luiz Carvalho, manager of energy business development, also stresses the importance of new discoveries: What we see here in Brazil is that sales of the gas engines for natural gas have big potential over the coming years, due to new discoveries of natural gas reserves, both offshore and onshore.

Although not as prominent as they are in Europe, environmental factors – starting with greenhouse gas emissions – are becoming a consideration in Latin America.

It is evident that this market is growing really fast and in Latin America we think that we are going to see a boom in the production and use of gas to produce energy due to its environmental impact and its cost, says Iban Bascones, sales manager of marine lubricants and cogeneration at Repsol in Spain.

The risk of shortages and even rationing, which has been a factor in the past, also has brought environmental issues back to the table. Nelson Oliveira, CEO of Ecogen Brasil in Sao Paulo, foresees growth in landfill gas applications resulting from these pressures. The need to be environmentally correct, allied to energy shortage, will make landfill an option to solve both problems, Oliveira believes. Ecogen has 48 branches around the country and has installed, operates and maintains scores of natural gas power generation sets.

General Technical Manager Alexandre Lacerda of Stemac, which also markets generator sets in Brazil, agrees, but believes there should be more incentives for this alternative gas option. There are great expectations on landfill but without receiving the proper incentives the feasibility would be compromised.

Landfill gas may become more prominent in Brazil in the future than in the rest of Latin America, observes Luiz Silvio Conti, lubricant specialist at Chevron Brazil: Due to the increased demand for greater production of energy, the use of landfill gas is developing. In all cities that have a sanitary landfill, there is a plan to develop the energy production using landfill gas.

The other issue promoting growth is the lack of viable alternatives for reliable power generation. For example, hydroelectric power contributes more than 80 percent of Brazils electricity, but delivery falters in dry months when water reservoir levels are down. And hydro is not the only power source that cannot keep up, according to Wagner Silva, CEO of Brazilian plant operator Breitener Energetica.

Talking about energy as a whole, Silva notes, hydropower generation is not enough to meet the full demand; nuclear energy is scrapped; alternative energies like wind and solar, in spite of being trendy, do not have enough volume. So thermo electric power generation is a very important option to complement the energy matrix.

To meet future demand, Stemacs Lacerda expects operators will demand greater performance from gas engines. Our customers will require in the future gas engines that can reach the same performance as a diesel engine in terms of power [kW], he says.

Martins of Axion Energy also looks forward to engines with higher outputs, and to advances in lube oil technology. Customers are requiring engines with higher output and lower fuel and lube oil consumption. To deal with this, engines will operate with higher temperatures. And the future challenge for gas engine oil companies will be to develop lube oils that endure these high temperatures without degrading, creating deposits or generating corrosion.

Looking ahead, powergen output from reciprocating gas engines may only represent 8 percent of total thermal output in Brazil right now, but that percentage is steadily increasing from a small base. Market conditions are clearly favorable and both OEMs and lubricant manufacturers can view the Latin American market with optimism.

Michael Herson is an analyst with the London-based consultancy The Strategy Works, which specializes in original research on the lubricants sector and other business-to-business markets on a global basis. Reach him by phone at +44 208 868 0212, or e-mail mherson@thestrategyworks.com. Website: www.thestrategyworks.com