Latin America

Published at 13:38 30 Apr 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.

We expect Latin American LNG takes this summer to step down by 1.6 Mt y/y to 9.4 Mt on Argentina’s growth in domestic production and expected increases in Mexican pipeline imports. The y/y drop came despite an uptick in Chilean and Brazilian LNG takes due to weak hydro generation and the commissioning of Brazil’s 1.5 GW LNG-to-power plant Porto Sergipe. Import growth projected in Jamaica, Puerto Rico and Colombia will not be enough to offset declines in Argentina and Mexico over Q2 19–Q3 19. Additionally, Argentina’s 0.5 Mt Tango FLNG is now expected to begin LNG exports in September, adding to the global supply glut.

Latin American LNG imports in March surprised to the upside, climbing by 0.3 Mt y/y to 1.4 Mt. Brazilian and Chilean takes were stronger y/y due to weak hydro generation prompting more gas into power, while higher receipts in Colombia, Puerto Rico and the Dominican Republic stood a combined 0.2 Mt higher y/y. Argentina imported no cargoes, in line with last year, while Mexican LNG takes dropped by 0.1 Mt y/y despite delays to pipeline infrastructure additions.

Brazil continued to be plagued by weak hydro generation, high rates of gas reinjection into oil wells shrinking available gas being marketed, and declining pipeline imports from Bolivia. Brazilian LNG imports in March increased by 0.1 Mt y/y to 0.3 Mt and are up by the same amount in April, totalling 0.2 Mt according to cargo-tracking data from Kpler, which supports our projected 0.2 Mt y/y growth in LNG imports this summer. Also adding to Brazilian demand, Porto Sergipe’s 1.5 GW LNG-to-power CCGT is scheduled to start operations in January 2020 and will begin the commissioning process in June. Over the commission period, Sergipe’s FSRU could receive a cargo of 60 thousand tonnes in each of Q3 19 and Q4 19.

A slight recovery in hydro reservoir levels provides some downside risk to our forecasts. As of 29 April, Brazilian reservoir levels had slightly recovered m/m and stood 2.3 percentage points (ppts) higher than the five-year average, although still 0.8 ppts down y/y. Month-to-date hydro generation has slightly recovered y/y, by 4%, with thermal generation mostly flat. Any extended recovery in hydro reservoir levels will be beholden to precipitation levels, with long-range forecasts (often subject to change) from Brazil’s meteorological agency (INMET) currently showing below-normal precipitation for some regions and above-normal rainfall for others.

Regardless of the hydro situation, we expect declines in marketable gas from the pre-salt to continue, along with reductions in Bolivian pipeline imports, encouraging LNG takes this summer.

Weak hydro generation is also affecting Chile, where LNG imports in March stepped up y/y to 0.3 Mt due to higher power sector gas burn. Hydro output in March dropped by 13% (-0.2 TWh) y/y while gas-fired output gained 23% (+0.3 TWh) y/y, more than offsetting the decline in hydro. Chilean LNG demand will also pick up in the next few months as the southern hemisphere winter starts, heating gas demand seasonally increases, and Argentinian pipeline imports halt in mid-May. We continue to expect Chilean LNG takes to ease slightly, by 0.1 Mt y/y to 1.9 Mt in Q2 19–Q3 19 as pipeline imports from Argentina will start once again in mid-September.

Argentinian pipeline exports into Chile will halt in mid-May and begin in mid-September as domestic production is not yet sufficient to fully meet Argentina’s consumption during the winter. However, Argentina’s gas output has steadily increased, climbing by 0.4 bcm y/y in January–February, with Vaca Muerta leading most of that growth. As Argentina seeks ways to commercialise its excess Vaca Muerta production during the southern hemisphere summer, first LNG exports from its 0.5 Mt Tango FLNG are scheduled to begin as soon as the period of peak gas demand ends in September. In Q2 19–Q3 19 (the southern hemisphere winter), we still expect LNG demand reductions to be more pronounced in Argentina compared to Chile, and we peg Argentina’s LNG imports to shrink by 0.9 Mt y/y to 1.8 Mt.

For Mexico, we expect Q2 19–Q3 19 LNG imports to decline by 1.1 Mt y/y to 2.0 Mt. Our balances assume the much-awaited 2.6 bcf/d Sur de Texas-Tuxpan pipeline will begin operations in end-June/July, although risks of a delay remain high on reports of growing social unrest and permitting issues. Full completion of the Wahalajara pipeline system this summer remains highly unlikely, if it happens this year at all. CFE’s April LNG tender for 17 cargoes to Manzanillo for May–December—cargoes which are ultimately to be replaced by pipeline flows through Wahalajara—seems to confirm our view. Our base case scenario assumes flows through Sur de Texas-Tuxpan will begin this summer, reducing Altamira LNG takes to 0.9 Mt, from 1.5 Mt in Q2 18–Q3 18, as we assume some system redundancy is still necessary given little excess gas to spare, lack of domestic storage and bottlenecks in pipeline infrastructure.

In a summer when the LNG market will be desperately seeking a home for its excess LNG, Latin American LNG imports will drop by 1.6 Mt y/y to 9.4 Mt. Expectations of growth in Mexican pipeline imports—which still carry significant timing risk—and growing domestic production in Argentina will offset any demand increases in Brazil (+0.2 Mt y/y), Colombia (+0.18 Mt y/y) Jamaica (+0.16 Mt y/y) and Puerto Rico (+0.12 Mt y/y).

Fig 1: Latin America LNG imports, Mt, y/y Fig 2: Argentina gas production, bcm, y/y
Source: Bloomberg, Kpler, Energy Aspects Source: IAPG, Energy Aspects

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