Latin America – Jul 2017

Published at 14:40 30 Aug 2017 by . Last edited 19:11 31 Aug 2017.

Total Latin American LNG imports expanded by 0.17 Mt y/y to 1.81 Mt in July. Argentina led the way by importing 0.15 Mt more y/y to meet an increased demand from the power sector. Mexico was close behind, taking 0.14 Mt more y/y in order to replace lower-than-expected pipeline imports from US. In contrast, Chile and Brazil took 0.08 Mt and 0.06 Mt less y/y. In the core South American countries, local power sector developments were important for the directional change. Meanwhile, the slowing of production gains in Argentina seems likely to be temporary given the number of production agreements the country has signed in recent months. We think the effect of those investments is likely to start to be seen in 2018. 

In terms of those power sector developments, gas gained a bigger share in Argentina’s generation mix due to a combination of new gas-fired capacity coming online and a significant fall in nuclear generation due to plant outages. Stronger gas-fired generation paired with a decline in domestic gas production boosted the need for LNG. In contrast, y/y gains in higher hydro (+0.46 TWh) and wind (+0.18 TWh) in Chile saw gas-fired generation slump y/y (-0.19 TWh), leading the country to import less LNG. Regional hydro levels have fallen, which could support LNG takes across the region in the upcoming months. Brazilian offshore gas production continues to strengthen, crowding out imported LNG and pipeline imports. According to lagged data, in June, Brazil produced 3.3 bcm of gas, bringing the H1 17 total to 19.2 bcm, 8% higher y/y. Over the same six-month period, gas pipeline imports were lower by 3 bcm (43%) y/y. We expect this trend to have continued into July.

Mexican LNG takes increased substantially in June and July, as US pipeline imports grew by less than expected on domestic transportation constraints and delays. As a result, and in combination with tenders for summer LNG cargoes, translated into a 0.14 Mt y/y rise in LNG imports in both June and July. Recently, impacts from Hurricane Harvey in Texas had reduced pipeline flows to Mexico to around 3.3-3.5 bcf/d. Though the impacts of the storm are still playing out, we anticipate flows to remain impacted for the next couple of weeks.

We have moderately increased our LNG import forecasts for the region for 2017, mostly due to the deteriorating hydro situation. We now see a modest y/y decline of 0.4 Mt, revised from a 1.1 Mt y/y fall. Our 2018 forecast is unchanged at a 1.9 Mt y/y fall, although the big risk here remains the pace of domestic gas production growth. For 2019, we forecast that the region takes a further 1 Mt less LNG y/y as Mexico continues to debottleneck its pipeline network for US imports and Argentine shale output should be much stronger.

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