Latin American LNG imports increased by 0.23 Mt y/y in February to 0.93 Mt—the first substantial y/y increase since May 2016. The increase was driven by stronger imports into Chile and Mexico, while imports into Brazil remained very weak. Indications are that Argentina imported no LNG at all for the fourth consecutive month.
The Vaca Muerta shale play in Argentina remains at the heart of the changing energy landscape in Latin America. Production continues to grow in Argentina, by 0.1 bcm y/y to 3.82 bcm according to January data, and increased output has been a key driver of lower LNG imports. Last week, Argentina’s Tecpetrol announced a $US 2.3 billion investment in the Vaca Muerta through to 2019, by which time Tecpetrol is aiming to have produced 5.1 bcm/y (14 mcm/d). As the play continues to attract investment for production thanks to subsidised wellhead prices, it is hard to see Argentina’s LNG imports increasing any time soon.
The same dynamic is also at play in Brazil, where the growth in domestic output from the country’s pre-salt formations has seriously dented imports, which fell by 69% y/y to 0.45 bcm in January—the lowest level since at least. In addition to rising production, imports also took a hit from milder weather than last year and stronger hydro and wind generation.
In February, the bright light amongst LNG importers was Chile, which imported 0.32 Mt, an increase of 0.20 Mt y/y. The strong imports came on the shoulders of the hottest February in 10 years (likely a result of La Niña) and much weaker hydro generation. Data point to Mexico importing 0.28 Mt of LNG in February, higher by 0.15 Mt (112%) y/y on last year’s low base.
The key themes for Latin America remained unchanged, with rising production, increasing renewables generation and a muted macroeconomic outlook likely to continue to eat away at LNG imports.
We are forecasting a 2.0 Mt y/y reduction in 2017 LNG imports into Latin America. The main upside for this year would be if hydro generation from the southern importers continues to suffer on drier-than-normal conditions. For 2018, we see another drop of 1.9 Mt from the main importers, as most of the same dynamics playing out in 2017 should continue, particularly the expansions in regional gas production.