Latin America

Published at 13:37 30 Sep 2019 by

Users licensed for the data service can access power generation data for Argentina, Brazil and Chile along with our Argentinian, Brazilian and Mexican gas balances.

A quicker-than-expected ramp up on the Sur de Texas-Tuxpan (STT) pipe has driven us to lower our expectations on 2020 Mexican LNG imports as flows begin to reduce the need for Altamira’s LNG. We maintain that some LNG takes remain necessary due to gas system balancing issues, but imports will still be reduced. For the rest of the region, our forecasts remain unchanged from last month. Chile resumed pipeline imports from Argentina on 15 September, eroding some of the need for LNG. Vaca Muerta producers have paused investment decisions as they wait to see how the temporary fuel freeze measures will be unwound once Argentina’s end-October election occurs. We remain bearish on Latin American regional LNG imports and expect Q4 19 takes to slow by 0.3 Mt y/y to 2.3 Mt. For 2020, we forecast Latin American imports at 11.9 Mt (-3.4 Mt y/y), 0.8 Mt lower from last month’s forecast.

Green light, go!

Mexico’s Altamira has received its last tendered cargo on 25 September and stocks are likely to last through the first two weeks of October. No public announcement has been made yet for October cargoes and we believe STT flows will begin substituting sendout from Altamira in October. Following comments from pipe developer Fermaca, we now assume the Wahalajara pipeline system will enter operations in early H2 20 and begin substituting sendout from Manzanillo. We continue to expect Mexico to tender a few cargoes into Altamira and Manzanillo after STT and Wahalajara fully ramp up—roughly one cargo a month into each terminal—due to the lack of storage in Mexico and the continuing need for back-up supply to balance the system.

Works at Pichilingue port (in Baja California) have started in order to accommodate an FSRU that could start in H2 20. Pichilingue LNG imports are destined to meet small-scale industrial demand and power generation. The FSRU is only expected to import a cargo every 45 days and will therefore not offset much of the potential losses in LNG takes at Manzanillo and Altamira. We also consider there to be significant timing risks on the project, as previous proposed FSRUs such as Pajaritos have been put on the table and scrapped several times.

Given the pipeline start-ups, we expect Mexican LNG imports in Q4 19 to Q1 20 to be 0.3 Mt lower y/y at 1.6 Mt. Reductions in LNG imports will quicken in H2 20 as the Wahalajara pipeline system potentially comes online, with total imports for the year dropping by 2.6 Mt y/y to 2.6 Mt. However, there is some upside risk to that figure if the Wahalajara system suffers further delays.

Game changing elections

Argentinian pipeline exports into Chile resumed on 15 September, as we enter the southern hemisphere summer and Argentina’s gas consumption seasonally plummets. At the end of August, the Argentinian government approved pipeline exports into Chile from 15 September 2019 to 15 May 2020 at a maximum of 10 mcm/d on a firm basis. During the same period last year, flows peaked at 7.5 mcm/d, suggesting that pipe exports into Chile will likely surpass last year’s levels. With Argentina’s gross production increasing y/y by an average 0.2 bcm/m from January to August, supply should be more than sufficient to meet that higher volume. As a result, we expect Chilean LNG imports to drop by 0.4 Mt y/y, to just 0.1 Mt in Q4 19.

Argentina is also gearing up for first Tango FLNG exports by end-October, with operator YPF said to currently be in talks to market its first LNG cargo. Tango FLNG will load a cargo every 45 days until May 2020.

However, the ripples from last month’s primary election results continue to have a detrimental effect on Vaca Muerta’s potential growth (see Monthly: Latin America, 29 August 2019). The economic and political uncertainty is already forcing Vaca Muerta producers such as Shell to delay future investment decisions, until the presidential elections, which take place in 11 October. The 90-day oil products price freeze adopted in 16 August to limit the impact of the peso’s plunge on consumers and on accelerating inflation is adding another layer of uncertainty. The government, producers and energy distributors are said to currently be in talks on how to best unwind the price freeze in a gradual way to ease the impact on consumers.

Earlier this month, Argentina’s biggest oil trade union warned that the price freeze is reducing drilling activity. Any such reduction has yet to be seen in production with August gross production figures pegging gas output 0.3 bcm higher y/y, in line with gains seen through this year. A total of 12 gas rigs operated in August, one less than a month earlier but three more y/y.

We think the current political and economic environment is likely to slow the pace of development in Vaca Muerta, but we do not think any major decision on gas subsidies by the government or investment decisions by producers will be made before the general election takes place in 11 October. We continue to expect Argentina to not import any cargoes in Q4 19 in-line with last year, and for 2020 imports to drop by 0.7 Mt y/y as domestic production growth continues to offset LNG demand.

LNG import forecast by country, Mt
Note: Others include Dominican Republic, Puerto Rico, Colombia, Uruguay and Jamaica. Q1 '17 to Q2 '19 are actuals.
Source: Bloomberg, Kpler, Energy Aspects

 

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