LNG imports in Latin American expanded y/y by 0.21 Mt in December to 0.90 Mt, led by Mexico taking 0.41 Mt, 0.15 Mt more y/y. Continuous delays to domestic pipelines starting up and growing gas demand from the power sector are increasing Mexico’s dependency on LNG to meet domestic gas consumption. Brazil’s low hydro reservoir levels persisted through December, limiting hydro generation and pushing more gas into power to fill the gap, increasing the need for LNG, imports of which were 0.05 Mt higher (87%) y/y on a very low base. The Dominican Republic received 0.06 Mt more y/y, amounting to 0.13 Mt, while Chilean LNG takes were flat y/y at 0.19 Mt. Argentina did not import any cargoes for the second consecutive month.
While upside to cross-border pipeline flows continue to be limited given a new wave of delays to domestic pipelines (see Data Review: Mexico, 30 January 2018), LNG continues to backfill demand. In December, LNG imports expanded by 0.15 Mt (57%) y/y despite high LNG prices in Northeast Asia drawing cargoes from the global market. Given continued declines in domestic natural gas output and the ongoing pipeline delays, we now expect LNG imports in 2018 to be 0.1 bcm (0.1 bcf/d) higher y/y—an upward revision from our previous forecast of a 0.1 bcm (9%) y/y fall. We have also cut our pipeline imports forecast by 0.1 bcm from last month, to 0.42 bcm (0.5 bcf/d) in 2018.
Mexico will continue to rely on LNG through 2018, with CFE planning to place an FSRU at the port of Coatzacoalcos in Veracruz towards the end of this year or start of 2019. The FSRU will be taken as a temporary measure, until the construction of the Texas–Tuxpan pipeline is completed, which should free up domestic gas to head to the Yucatan Peninsula, rather than being diverted to the northeastern and central parts of Mexico. Although a tender has yet to be publicly announced, the project could take less than a year to become operational.
Data suggests Argentina imported no LNG for the second consecutive month in December, as the arrival of the southern hemisphere summer has cut gas demand. The month was moderately warmer than normal, with CDDs in December 3% over the five-year average and 2% higher y/y.
Total power generation increased mildly, by 0.21 TWh (2%) y/y, with stronger hydro (+0.61 TWh, +19%) and nuclear generation (+0.12 TWh, +24%) meeting most of the higher demand. Gas burn in the power sector was in line with last year, at 6.55 TWh, while coal-fired output decreased by 0.66 TWh (43%) y/y. The Richards Bay coal benchmark averaged above 90 $/t, keeping coal uncompetitive.
Lagged IAPG data point to a sixth consecutive month of declines in domestic gas production. October output totalled 3.85 bcm, 16 mcm lower y/y. There were production gains at the Neuquen Basin (Vaca Muerta), a modest 24 mcm y/y to 2.23 bcm, while the Austral Basin increased by 32 mcm y/y to 0.96 bcm. The production gains at both basins were not enough to offset production declines elsewhere in Argentina. While Vaca Muerta production continues to grow, it is not accelerating as fast as we expected.
Chilean LNG imports stood at 0.19 Mt, in line with last year, as power sector gas demand shrank on stronger renewable generation. For December, overall power generation was up. The increase was met by more hydro generation, higher by 0.82 TWh (43%), and solar generation, which was up by 0.14 TWh (41%). The stronger renewable generation squeezed thermal sources in the generation mix, with gas-fired output down by 0.38 TWh (53%) and coal by 0.20 TWh (7%).
In December, LNG imports were 0.05 Mt higher y/y at 0.12 Mt as low reservoir levels limited hydro generation and pushed more gas into the power mix. Hydro levels stood 7.5 percentage points below the five-year average, at 28.7% full. Preliminary ONS statistics indicate hydro generation for the month fell by 3.19 TWh (9%) y/y to 34.15 TWh, while thermal generation stepped up by 1.14 TWh (16%) y/y to 8.29 TWh. By 30 January, however, reservoir levels stood in line with the five-year average, at 40% full, indicating hydro generation could recover in January.
Lagged data from ANP sets total gas production for November at 3.40 bcm, relatively small growth of 70 mcm (2%) y/y. While the pre-salt basins of Rio de Janeiro and Sao Paulo keep growing steadily y/y, by 0.11 bcm and 30 mcm respectively, other conventional production is in decline. Production in the Amazonas was down by 50 mcm, with other basins collectively dropping by 20 mcm.
We have revised our LNG import forecasts for the region modestly up for 2018, with LNG demand dropping off by 0.1 Mt y/y compared to the previous forecast of a 0.5 Mt fall. That was largely due to an upward revision to Mexican imports driven by the continued delays to downstream domestic pipelines. High levels of renewable power growth and growth in gas production at Argentina’s Vaca Muerta and Brazil’s pre-salt remain the main headwinds to LNG establishing any sort of foothold in the region. Despite January’s recovery of reservoir levels back to the five-year average, a return to the lows registered in October (average 23% full) would depress hydro generation and hold some upside for Brazilian LNG demand in Q1 18. In 2019, we expect Latin American receipts to be up by 1.1 Mt y/y at 17 Mt on a full year of LNG imports from Uruguay.