Aggregate Latin American imports totalled just 0.75 Mt in March, down by 0.3 Mt y/y, or 28%. Argentina, Brazil and Chile all imported less LNG than last year over the month. Argentina, taking its first cargo since October 2016, imported just 0.03 Mt, which is lower y/y by 0.1 Mt. Brazilian imports remained meagre at just 0.06 Mt, compared to 0.14 Mt last year, while imports from Mexico actually increased for the second consecutive month.
Argentina’s domestic production contracted y/y for the first time since November 2015, falling by 0.21 bcm to 3.3 bcm in February. Despite the decline, the prospects for the Vaca Muerta shale play remain positive. ExxonMobil, which will have invested $750 million in the play by year-end, is reportedly going to begin flowing production from Vaca Muerta in May. In the same play, Total has also recently sanctioned the development of its first phase of the Aguada Pichana Este licence, having reported excellent results from its pilot wells and citing the government’s subsidised wellhead prices as factors in the decision. The development of the Vaca Muerta shale remains one of the largest factors that will contribute to the further decline in the region’s LNG imports.
The other major bearish factor of late has been Brazilian domestic production, which lagged data show continued to grow y/y in February, by 5% to 3.0 bcm. In conjunction with stronger hydro generation this year, this has squeezed Brazilian LNG imports.
Though still challenging, the macroeconomic outlook for Latin America has improved in line with much of the world economy. According to the IMF’s latest outlook, after suffering recession in 2016, Argentina’s prospects have improved, with GDP expected to grow by 2.2% in 2017, reflecting stronger public investment and more robust consumption. Brazil also suffered a major economic contraction last year, and although the Brazilian economy looks set to recover in 2017, GDP growth is still not forecast to be stellar, at just 0.2%. According to IMF estimates, Mexico and Chile are set to see solid economic growth in 2017, with each economy set to grow by 1.7% over the year. Though generally supportive of stronger LNG imports, the fundamentally bearish changes to the region’s energy supply sources are likely to outweigh any GDP-related increases in imports.
We are forecasting a 1.8 Mt y/y reduction in 2017 LNG imports into Latin America. With hydro generation looking like it could recover on wetter-than-normal conditions, risks to those LNG numbers are to the downside. For 2018, we see another drop of 2.0 Mt from the main importers.