Latin America

Published at 08:00 29 Mar 2019 by . Last edited 11:18 22 Aug 2019.

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.

Latin American LNG imports still remain in the doldrums, but a rare uptake in LNG is now coming from Brazil, where LNG takes have started to recover in the last two months. The recovery comes from a drop in domestic gas available to market, as pre-salt hydrocarbon has begun to taper off and producers have resorted to reinjecting higher volumes of gas into wells to maintain liquids production. Add in a slowdown in pipeline exports from Bolivia to Brazil and some stronger-than-expected takes from Dominican and Colombian imports, and the strong losses seen in other markets have been a bit tempered. We still expect softness from Mexico, as the new Sur de Texas-Tuxpan pipeline that will facilitate higher pipeline imports of US gas is expected online in mid-Q2 19. Overall, we still expect to see a step-down in the region’s LNG imports by 1.8 Mt y/y in Q2 19–Q3 19.

Across February, a reduction in LNG imports in Chile and Mexico drove Latin American LNG imports down by 0.1 Mt y/y. Combined imports in the Dominican Republic, Colombia, Puerto Rico and Jamaica were flat compared to last year at 0.3 Mt, while deliveries into Brazil were up by 0.2 Mt y/y. Initial indicators for March suggest that regional imports are looking up by 0.4 Mt y/y, with Brazil taking up to 0.3 Mt more y/y, Mexico falling and all others either flat or up y/y by a cargo or two.

Returning

Brazilian LNG uptakes in February and March surprised to the upside, increasing by 0.2 Mt and 0.3 Mt y/y respectively. A combination of sluggish domestic gas output growth, greater use of gas reinjected into wells to maximise oil output, and sharp drops in pipeline imports from Bolivia are all behind the recent uptake in LNG cargoes. We have revised our Q2 19 expectations on Brazilian LNG imports upwards, now stepping up by 0.2 Mt y/y to 1.8 Mt vs the 0.2 Mt y/y decline forecast last month. The looser global LNG balances which have driven softer LNG prices since the start of the year, with the JKM M+1 closing at 8.8 $/mmbtu on 17 January vs 4.6 $/mmbtu on 26 March, could well increase the appetite for LNG, although we do see demand sensitivity in Brazil being limited.

In line with the trends seen since September 2018, the latest ANP figures indicate Brazilian domestic production in January was mostly flat y/y at 3.5 bcm. Production gains in the Amazonas state and the pre-salt basin of Sao Paulo were offset by declines elsewhere, particularly in the state of Maranhao. Over 2018, domestic gas production totalled 40.9 bcm, a small 0.8 bcm increase y/y, but greater use of gas for reinjection into wells, flaring, E&P and processing units meant that actual gas available to market shrank by 2 bcm y/y to 20.1 bcm. Gas use for reinjection into wells alone soared by a hefty 27%, or 2.7 bcm in 2018, to 12.8 bcm.

We are forecasting that Brazilian oil output will grow by 0.3 mb/d y/y this summer, potentially supporting production gains from associated gas. However, the use of gas for reinjection into wells to support oil production is expected to continue and erode those gains.

Bolivian gas problems could keep Brazil as an LNG importer for longer

Lack of upstream investment and growing domestic consumption in Bolivia has also limited its exports to Brazil. Over 2018, pipeline imports from Bolivia dropped by 0.8 bcm y/y to 8 bcm. The gas supply contract between Bolivia and Brazil is set to expire in December 2019. Under that contract, Petrobras take-or-pay level is 24 mcm/d, or that 8.8 bcm/y offtake, so there have been arrears from Bolivian state producer YPBF. YPFB recently stated that the contract will need to go beyond December as it has not delivered all the gas that Brazil has paid for, but the company is hopeful that the contract will be extended through 2023. Contract renegotiations are underway, and Petrobras executives have stated that they are considering a deal with smaller volumes that will allow independent gas companies to import gas from Bolivia directly, although this does seem like an excuse to reduce import volumes.

YPFB announced that it will up gas production by 4 mcm/d (1.5 bcm) in 2019, which would technically allow those exports to recover. YPFB has earmarked investment of $1.45 billion in 2019 targeting exploration and production activities.

While the Bolivian contract issue plays out, Brazil is likely to back-fill some of those volumes with higher LNG receipts. We now forecast LNG takes in Q2 19-Q3 19 to grow by 0.2 Mt y/y at 1.8 Mt and 2019 imports to stand 0.5 Mt stronger compared to last year at 2.4 Mt. Some downside to the forecast numbers could be seen from stronger hydro generation. As of 27 March, reservoirs were largely in line with the five-year average at 50.9% full, while precipitation forecasts from Brazil’s meteorological agency INMET for Q2 19 are lower than normal in the centre-east of the country; higher-than-normal precipitation is forecast in the south and parts of the northwest.

Still cautious on Mexican declines

For Mexico, LNG imports are still expected to be pushed out by growing pipeline connectivity with the US. The 2.6 bcf/d Sur de Texas-Tuxpan pipeline that will facilitate more US imports is nearing completion, while the start-up of the Wahalajara pipeline system this summer looks delayed. We have been expecting Sur de Texas-Tuxpan flows to ramp up in the Q2 19–Q3 19 season, which will likely allow a 0.6 bcf/d y/y increase in Mexican imports of US gas to average 5.3 bcf/d. We currently assume first flows in late May or early June, although we do not rule out further delays or an even slower than expected ramp-up, as the completion of further downstream connections to the pipeline is less clear. If that gas is only used to replace LNG, it would replace 0.3 Mt per month of imports.

Delays to the Wahalajara pipeline system in the state of Durango—the state through which sections of the 1.5 bcf/d El Encino-La Laguna and 1.2 bcf/d La Laguna-Aguascalientes pass—make the latest May start-up date highly unlikely, as there have been reports of growing social unrest since early February aimed at the pipeline.

Increasingly, the question is centred around whether completion of the Wahalajara system will take place this summer season rather than when it will start. While there have been no further updates from local sources on the protests, if the segments under dispute in Durango result in court orders halting construction activity, the delay could potentially lag the in-service timeline to year-end. Delays stemming from collective land ownership issues have typically lasted a year or longer.

We peg summer Mexican LNG imports in Q2 19-Q3 19 1.2 Mt lower y/y at 1.9 Mt. We assume Manzanillo LNG imports, which will eventually be replaced by pipeline flows on the Wahalajara pipeline system, will continue in the absence of first pipeline flows. Further timing or connection risks on the Sur de Texas-Tuxpan cannot be ruled out, and we expect some LNG imports at Altamira to continue backfilling demand, especially in the absence of Mexican reservoir storage.

At a time when excess LNG is looking for a home in the global market, Latin America will not provide its much-needed home. Despite our upward revisions to Brazilian LNG imports this summer, projected declines in Mexico, Argentina, and Chile will see Latin American LNG imports drop by 1.8 Mt y/y in Q2 19-Q3 19. In 2019 as a whole, we expect Latin American LNG takes to dip 2.0 Mt lower y/y, to 14.3 Mt.

Fig 1: Latin America LNG imports, y/y, Mt Fig 2: Brazilian gas available to market, bcm
Source: Bloomberg, Kpler, Energy Aspects

Note: Gas available to market = Domestic production-(Reinjections-Flaring-E&P-Processing units)
Source: ANP, Energy Aspects

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