News of Mexico’s CFE pipeline arbitration requests—including on the completed Sur de Texas-Tuxpan—and the proposed return of Pajarito’s FSRU could be taken as bullish for Latin American LNG takes. However, the news comes on the back of record-high Vaca Muerta output in Argentina, and despite it being the height of the southern hemisphere’s winter, Argentinian pipeline exports into Chile stayed strong through June. Bolivian pipeline exports into Brazil continue to slip, but a recovery in hydro reservoir levels will likely dampen Brazilian LNG demand this quarter. We continue to forecast Latin American LNG imports in Q3 19 will step down by 1.3 Mt y/y, unchanged from last month.
In June, Latin American LNG imports were flat y/y as declines in Argentina (-0.3 Mt y/y), Jamaica (-0.06 Mt y/y) and Puerto Rico (-0.02 Mt y/y) were offset by stronger takes elsewhere. Capped pipeline flows owing to delays in infrastructure supported a 0.1 Mt y/y increase in Mexican LNG imports. In June—the height of the southern hemisphere’s winter—Chilean LNG takes totalled 0.1 Mt more y/y while the Dominican Republic imported 0.2 Mt more y/y.
Almost a year after CFE’s announcement of its intention to stop tendering LNG by end-2018 or early 2019, the country continues to depend on LNG to meet demand. Following CFE’s announcement, we still held a conservative view on Mexican pipeline import growth given the numerous setbacks to project completions, ranging from land disputes with ejidos (communal landholders) to environmental concerns to permitting issues to social unrest and delays to construction. As such, we also maintained a cautious view on LNG import reductions.
In June, Mexican LNG came in 0.1 Mt higher y/y, totalling 0.7 Mt, as first flows on Sur de Texas-Tuxpan—which seemed imminent in June—have been blocked by CFE’s most recent arbitration request (see North America Monthly: Mexico – Legal blockade, 25 July 2019). Considering international arbitration cases can take years to resolve, the question now is whether or not CFE will keep Sur de Texas-Tuxpan shut until the arbitration is resolved. If not, extra LNG will need to be tendered into Altamira to meet demand, with Mexican LNG imports flat y/y until new pipes start flowing gas.
So far, CFE has tendered for cargoes into Altamira to backfill demand until end-August. Should Sur de Texas-Tuxpan begin ramping up in September, we forecast Mexican LNG imports to drop by 0.4 Mt y/y in Q3 19 and by 0.1 Mt y/y in Q4 19. These numbers carry significant risk of stronger LNG imports than expected however, should arbitration proceedings prevent Sur de Texas-Tuxpan from starting up in September.
News that Pajarito’s proposed 5.0 Mtpa FSRU is back on the table after it was scrapped earlier this year also provides upside risk to our forecasts. Mexico’s PEMEX, CFE and pipeline operator CENAGAS are said to be in talks again to install an FSRU in southeast Mexico, as some industrial consumers have said only 50% of their gas demand is being met.
The over- and under-performer
Despite Argentinian demand for gas seasonally peaking in June–July, Argentinian LNG imports slowed the most (-0.3 Mt y/y to 0.3 Mt) in June, supported by overperforming domestic production. The latest IAPG (Argentine Institute of Oil and Gas) data indicate Argentinian gas production reached an all-time high of 4.3 bcm (+0.3 bcm y/y) in May, driven by gains in the Vaca Muerta basin. Strong domestic output also allowed for pipeline exports into Chile to continue in June, which contrasts with last year, when flows had to slow significantly to prioritise domestic demand. Year-to-date, Argentinian exports into Chile total 1 bcm vs only 0.1 bcm last year, while imports from Bolivia have shrunk by 1 bcm y/y during the same period.
As Argentina’s excess gas supply grows, the country is gearing up to begin LNG exports in the first week of September at its small 0.5 Mtpa Tango FLNG facility, having chartered a cargo this month. Additionally, the Argentinian government has approved various reforms in order to support gas exports through a simpler authorisation process. The approval procedure is said to have been reduced from 45 to 15 working days and is aimed at encouraging pipeline exports—particularly into neighbouring Chile—and LNG exports. Mostly unchanged from last month, we forecast Argentinian LNG imports to shrink by 0.8 Mt y/y, followed by a 0.1 Mt reduction in Chilean takes in Q3 19. In line with last year, Argentina will not import cargoes in Q4 19, while we forecast Chilean LNG imports will drop by 0.4 Mt y/y during the same period.
In Brazil, as marketable production continues to underperform and LNG plays a key role in meeting demand, Brazilian LNG imports in June were flat y/y at 0.3 Mt. Marketable production stood flat y/y in June, masking healthy 0.2 bcm y/y growth in gross output. The production gains were eroded by a 0.2 bcm y/y increase in gas reinjected into wells. Slower imports from Bolivia—which for the first four months of the year stand 0.6 bcm lower y/y—have prevented Brazilian LNG takes from falling. We do expect small declines in Brazilian LNG takes, of 0.2 Mt y/y in Q3 19 and of 0.1 Mt y/y in Q4 19, owing to reduced power sector gas demand. Some upside risk exists to our forecast, however, should the Brazilian hydro worsen with LNG imports stepping in to meet higher power sector gas demand.
|Fig 1: Argentina gas imports and exports, bcm, y/y||Fig 2: Brazil gas supply, bcm, y/y|
Note: LHS=imports; RHS=exports
|Source: ANP, Energy Aspects|