Latin America – Aug 2017

Published at 17:44 28 Sep 2017 by . Last edited 15:12 5 Nov 2018.

Latin American imports jumped by 0.30 Mt y/y in August, reaching 1.97 Mt, according to indicative figures. Mexican LNG takes led the increase, with deliveries up by 0.25 Mt y/y, as LNG was used as backfill to make up for disrupted pipeline flows from South Texas due to Hurricane Harvey. Argentina and Chile received 0.07 Mt and 0.05 Mt more LNG y/y respectively, while Brazilian imports stayed flat y/y. Puerto Rico, however, imported 0.07 Mt less LNG y/y.

Mexico

Mexican LNG imports were at 0.68 Mt in August, up by 0.25 Mt, as Hurricane Harvey caused significant interruptions to cross-border flows to Mexico, forcing CENAGAS to impose gas consumption restrictions from 24-30 August (see our Mexico Data review, 28 September 2017). The restrictions affected larger gas users as they were asked to cut gas consumption by 20-70% to help maintain system linepack. In late August, the state-run power utility CFE announced a tender for nine LNG cargoes to be delivered to the Altamira LNG terminal from October-December. Earlier this month, Shell and Cheniere were reported to have won the tender.

Argentina

Argentina’s LNG imports in August amounted to 0.50 Mt, a smaller increase of 0.07 Mt y/y than the 0.15 Mt y/y rise in July. Higher Argentinian LNG deliveries have been driven by a rise in power sector gas demand and domestic gas production coming in lower than expectations. August HDDs in Argentina were 3% lower y/y and 11% below the five-year average, indicating a milder-than normal winter month and thus limiting heating gas demand.

August power generation data indicate that total generation in Argentina rose by 0.28 TWh y/y to 11.44 TWh, led by hydro generation, which logged its strongest y/y increase since April 2016 (+0.52 TWh y/y to 3.18 TWh). Gas-fired generation grew by 0.35 TWh to 6.56 TWh as coal-fired output fell by a massive 0.78 TWh y/y to 0.67 TWh, the lowest output since at least 2015. Average Australian coal prices during August were almost 30 $/t (60%) higher y/y, supporting the use of gas for power generation and higher LNG imports. Utility gas demand, as reported by CAMMESA, totalled 1.45 bcm (1.07 Mt), a 0.24 bcm (20%) increase y/y, whereas coal use was down by 45% y/y. Argentinian gas production declined for the third consecutive month, by 69 mcm y/y, reaching 3.87 bcm. Although the government guarantees a price of 7 $/mmbtu to gas producers, reports suggest that Argentina is at least $700 million behind on its subsidy payments. News of delayed payments is certainly a dark cloud hanging over output at Vaca Muerta, which has sealed a number of high-profile exploration and production agreements in Argentina this year.

Chile

Chilean LNG imports rose by 0.05 Mt y/y in August to 0.36 Mt, supporting higher gas-fired generation, which expanded by 0.29 TWh y/y to 1.15 TWh, thus offsetting a 0.27 TWh fall in coal-fired output. August HDDs were 12% higher y/y and 8% above the five-year average, buoying heating demand.

Brazil

Brazilian LNG imports were flat y/y at 0.26 Mt, with strong domestic gas production limiting the country’s appetite for imports. In July—the latest month for which data are available—indicate that domestic gas production reached 3.57 bcm, a 0.24 bcm (7%) y/y increase, led by growth in the Rio de Janeiro (+11%) and Sao Paulo (+19%) regions.

Thermal generation in Brazil received a boost in August from yet another month of sharply lower hydro generation. Preliminary data for September show that aggregate reservoir levels continue to fall relative to the five-year average. As of 27 September, aggregate reservoir levels from the Southeast/Central East part of the country—the region with by far the most reservoir capacity—fell to just 26% capacity, the lowest level since February 2015. Total power generation in Brazil was 46.53 TWh in August, 0.51 TWh less y/y. However, hydro fell by 4.55 TWh (14%) y/y, allowing thermal power generation to add 3.29 TWh (35%) y/y to 12.65 TWh. Brazil’s national weather agency, INMET, forecasts lower-than-normal precipitation for the Southeast/Central East region during the October to December period. The call on thermal power generation is therefore likely to remain supported until reservoir levels are replenished.

The Brazilian government is seeking congressional approval by the end of 2017 of legislation that will foster greater gas market competition and support thermal gas generation as part of the government’s ‘Gas to Grow’ initiative. The project, which aims to grow the demand side for gas so that the full potential of Brazil's presalt oil and gas deposits can be realized, promises to overhaul tax rules for the gas industry to reduce the cost of transporting and delivering the fuel to market, as well as to further integrate the natural gas and electricity sectors.

Outlook

We have left our LNG forecasts largely unchanged for Q4 17 at 2.9 Mt, posting a moderate decline of 0.1 Mt. In 2018, we see LNG demand dropping off by 0.6 Mt y/y, though most of that is driven by expansions of gas production at Argentina’s Vaca Muerta and Brazil’s presalt. With some concerns over the former, LNG demand could be higher for the region next year. Also, the deterioration in Brazilian hydro holds upside for LNG demand in both Q4 17 and 2018. In 2019, we expect exports to be up by 1.5 Mt y/y at 16.6 Mt on a full year of LNG imports from Uruguay.

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