Indicative data show Latin American LNG imports at a total of 1.49 Mt in May, a y/y decrease of 0.5 Mt. Brazil led the fall, taking just 0.14 Mt, down y/y by a huge 0.28 Mt (67%), while Chile’s 0.37 Mt total was 0.20 Mt (34%) lower y/y, and Mexico’s 0.34 Mt total was down by 0.17 Mt. Argentina was the only country to increase LNG imports y/y, up by 0.17 Mt at 0.52 Mt.
The fall in Brazilian LNG imports has been largely due to growing domestic production, which increased by 0.2 bcm (7%) y/y to 3.1 bcm in April. Production continues to be driven by impressive numbers out of the states of Rio de Janeiro and Sao Paulo, all coming out of the offshore pre-salt basins. Rio production increased by 27% y/y in April to 1.4 bcm, while Sao Paulo production increased by nearly 20% y/y to 0.7 bcm. Argentina’s imports were supported by the onset of winter weather and potentially a continuation of the trend of slower growth in domestic production seen in March and April, when according to lagged data output grew y/y only by 11 mcm and 6 mcm, respectively.
Reservoir levels across Latin America remain low—Chile’s levels are down by 19% y/y in May, while those in Brazil remain 10% lower y/y, even though they improved from April. Low hydro reservoir levels have translated into losses for hydro generation across the core countries in the region, in turn supporting thermal generation and gas-fired generation in particular during May. Gas-fired power generation grew by 0.34 TWh y/y in Chile and by 27 GWh y/y in Argentina. In Brazil, thermal generation also expanded by 1.6 TWh y/y, although that is a small amount and easily covered by the expanding levels of local production.
There is little in the regional fundamentals for LNG markets to be bullish about, although it is possible Brazil will prioritise reducing pipeline imports from Bolivia over making further cuts to LNG imports. Bolivia, an exporter to both Brazil and Argentina, is caught in a situation where both its domestic output and one—possibly both—of its major markets are producing more gas domestically. The situation is most acute with Brazil as some of the volumes under the Petrobras supply contract with Bolivia expire in less than two years and the company seems in no hurry to extend the contract, as it is looking for greater flexibility and lower volumes. Still, it is hard to see all of this being a huge support for LNG, particularly if both Brazilian pre-salt and Argentinian shale deliver good gas volumes in the coming years. We are forecasting a 1.3 Mt y/y reduction in 2017 LNG imports into Latin America, which is a moderately smaller drop than last month’s forecast of a 1.6 Mt decline. Our 2018 forecast is unchanged at a y/y fall of 1.9 Mt from the main importers.