We are delighted to present our new Monthly publications, formerly known as Data Review, which will share our short-term forecasts. Users licensed for the data service can access power generation data for Argentina, Brazil and Chile along with our Argentinian and Mexican gas balances and Brazilian gas supply data.
Consistent pipeline infrastructure development delays in Mexico and stronger-than-expected Puerto Rican imports have led us to revise upwards our forecasts from last month by 0.2 Mt for this winter, with Latin American LNG takes now at 5.8 Mt (-0.1 Mt y/y). A fresh wave of pipeline delays was announced this month in Mexico, which supports our conservative outlook on the growth of cross-border flows for the remainder of this year and Q1 19. LNG will continue to be needed, and we expect imports this winter to stay flat y/y at 2.5 Mt. Our forecasts for Argentina and Chile remain unchanged as domestic production from the Vaca Muerta play will continue to decrease the need for LNG takes in the two countries. A mild recovery in Brazilian hydro reservoir levels and stronger nuclear generation mean that we now expect LNG imports to total 0.6 Mt, a downwards revision of 0.2 Mt from last month. However, possible headwinds to Brazilian domestic production could be an upside risk to our forecast. Puerto Rico’s LNG imports have been consistently coming in around 0.12 Mtpm, and we now expect them to total 0.8 Mt over Q4 18-Q1 19, which is a 0.3 Mt upwards revision from last month.
Mild weather across Latin America, rising domestic output and greater generation from alternative sources such as coal and nuclear drove a mild 0.2 Mt y/y decline in September LNG receipts. Imports of LNG in Brazil, Chile and Mexico were flat y/y, while Argentinian takes were lower y/y on rising domestic production. Other Latin American consumers combined, however, took 0.3 Mt, a marginal y/y increase of 0.1 Mt that was driven by an increase in port receipts from the Dominican Republic (+0.02 Mt y/y) and Puerto Rico (+0.06 Mt y/y).
Mexican LNG takes are not going away
We have long maintained a conservative outlook on the growth of Mexican pipeline imports due to consistent delays that have plagued pipeline infrastructure development. Following this month’s confirmation of yet more delays, we maintain our conservative outlook for winter season pipeline imports to average 4.8-4.9 bcf/d—similar to the current cross-border level.
Last month, it was announced that the 2.6 bcf/d Valley Crossing pipeline, which will feed the 2.6 bcf/d Sur de Texas-Tuxpan, was being deferred until April 2019, while the full completion of the Wahalajara system was pushed back to March 2019 from a previous end-2018 date in recent weeks. No updates on the development of the 0.5 bcf/d Samalayuca-Sasabe pipeline also makes a December start-up highly unlikely.
The infrastructure setbacks make CFEnergia’s ambitious plan to stop tendering LNG by end-2018 or early 2019 even more unlikely. LNG imports were flat y/y in September at 0.4 Mt and preliminary data from Kpler peg October imports at 0.5 Mt, also flat from last year. We expect LNG imports at 2.6 Mt across the winter, flat y/y and largely unchanged from our forecast last month. We expect Mexican LNG takes will begin to slow down by summer 2019, although only dropping by 0.6 Mt y/y to 2.6 Mt, as some debottlenecking should occur. LNG will continue to be needed to compensate for declining PEMEX domestic production and possible extensions to delays on infrastructure projects. In time, we expect LNG will be replaced by pipeline gas directly imported from the US, although more infrastructure will need to be completed.
Headwinds to Brazilian domestic production
We have been assuming consistent growth in Brazilian gas production driven by output increases in the pre-salt basins. Such domestic output is expected to gradually replace LNG imports, and for the Q4 18-Q1 19 period we expect LNG takes to drop by 0.2 Mt y/y to 0.6 Mt. However, we have started to see some declines in domestic production that could, if they continue, provide an upside to our forecasts.
In August, domestic gas production was 0.2 bcm lower y/y, the strongest decline on record according to latest ANP production data. The decline comes from a chunky 0.2 bcm y/y drop in output from the pre-salt region of Sao Paulo, the fifth month in a row to register y/y declines in production. The prominent pre-salt basin of Rio de Janeiro, which has expanded by an average of 0.2 bcm/m y/y since the start of the year and has helped mask the declines in Sao Paulo, was only 0.07 bcm higher y/y. Almost all of the gas production in Brazil is associated with pre-salt oil production, and some of the largest recent fields for new pre-salt oil production have associated gas, which is high in carbon dioxide. Gas associated with the Mero field (ex-Libra) is 45% CO2, which is uncommercial and will be re-injected into oil wells for pressure support.
The largest recent gas discovery was the Jupiter field in the Santos basin, which was originally cited as having over 3 billion boe of gas, but again the gas is too high in CO2 to be commercial, with gas re-injection into oil wells now in the field exploitation plan. More recently, in October, Petrobras started production at the Lula Extreme South field in the Santos Basin, which does promise to ramp up to 6 mcm/d of gas production. While pre-salt still has potential to be developed like Lula, the associated gas needs to be lower in CO2, or the declines in production that we are seeing will become harder and harder to offset.
Despite considerably milder weather and a drop in power sector gas demand during the month, Brazilian LNG takes were still flat y/y at 0.3 Mt. Although ANP production data for September is not yet available, this could indicate less domestic output was available again through the month. CDDs in September were 5% lower y/y and 3% below the five-year average, reducing cooling power demand. While total power generation was flat y/y on the milder weather, hefty increases in nuclear (+0.5 TWh or 48% y/y) and wind generation (+0.4 TWh or 9%) made up for lost hydro and thermal output. Thermal production declined most heavily by 1.0 TWh (10%) compared to last year, while hydro stepped down 0.2 TWh (1%) lower y/y on weak reservoir levels. Hydro stocks as of 26 October stood 13 percentage points (ppts) higher y/y and narrowed its deficit to the five-year average, just 2 ppts below. Healthy reservoir stocks will support hydro generation, offsetting thermal generation needs.
Vaca Muerta saving the day, finally
Argentinian LNG imports shrank by a hefty 0.24 Mt (62%) y/y while Chilean receipts were lower y/y by 0.1 Mt (4%) as mild weather also helped to mute heating gas demand in both countries. Argentina recorded the mildest September month since at least 2008, with HDDs 23% lower y/y and 31% below the five-year average. Similar weather patterns affected Chile, as HDDs were 8% lower y/y and 3% below the five-year average.
Despite a 0.54 TWh (9%) increase in Argentinian gas-fired generation, where power sector gas demand was 1.5 bcm (14%) stronger y/y, LNG imports shrank. Latest IAPG September production figures are not yet available, but such a trend proves a growing reliance on expanding domestic output, particularly from the Vaca Muerta basin. We maintain unchanged from last month our forecasts for no LNG imports in Q4 18-Q1 19.
Milder weather coupled with increases in solar generation (+0.11 TWh, 31% y/y) and coal-fired generation (+0.12 TWh, 5% y/y) softened Chile’s call for LNG imports in September. Chilean LNG takes will drop by 0.3 Mt y/y to 1.0 Mt in Q4 18-Q1 19, with our forecast unchanged from last month. Argentinian gas exports to the country are scheduled to start this month, already replacing LNG demand as preliminary data from Kpler peg Chilean LNG imports at 0.2 Mt, a 0.06 Mt (24%) drop compared to last year.
|Fig 1: Mexican LNG imports, Mt||Fig 2: Brazilian pre-salt gas production, y/y , bcm|
|Source: Bloomberg, Kpler, Energy Aspects||Source: ANP, Energy Aspects|