Latin America

Published at 15:45 30 Oct 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.

We have upwardly revised our forecast for Latin American LNG imports and now peg Q4 19 LNG takes at 2.6 Mt, flat y/y compared to our previous estimate of a 0.3 Mt fall. 2020 LNG imports are now down by 2.3 Mt y/y, from a previous 3.4 Mt drop. The upward revisions are driven by the lack of any substitution of LNG at Mexico’s Altamira terminal, despite the Sur de Texas-Tuxpan (STT) pipe now being fully operational. Brazil’s 1.5 GW Sergipe CCGT is on track to be operational in January and will feed a cargo a month through its FSRU. Production growth in Brazil’s pre-salt is being offset by greater reinjection of gas into wells. The return of internventionist policies such as pricing and currency controls following Argentina’s election of left-leaning president Alberto Fernandez threatens to slow Vaca Muerta’s growth. For now, our forecasts for Argentina and Chile remain unchanged as we wait for policy decisions from the new government.

No pipeline flows into Altamira yet

Mexico’s state-owned electricity utility CFE has often stated an intention to cease LNG imports. But despite STT now being fully operational, Altamira has yet to receive any piped gas. Sendout at Altamira is running as usual at 8-11 mcm/d and the terminal last received a cargo on 11 October. The cargo was not publicly tendered by CFE, indicating that tenders can no longer be relied upon to help estimate Altamira sendout’s level of substitution by STT flows. Moreover, the cargo was idle off the terminal for two weeks before unloading, suggesting some uncertainty as to whether the cargo was needed. We think there could be connection issues between STT and SISTRANGAS at Altamira, preventing piped gas from substituting some LNG sendout.

Our reference case had always assumed one cargo would come into Altamira per month to help with system balancing. However, new SISTRANGAS operating balance rules from September could affect the role of LNG. Still, we expect LNG to play a near-term role given shortcomings in the Mexican gas network (including metering deficiencies, limited SO visibility on operating losses on non-SISTRANGAS systems and a lack of accurate demand measurement in the systems). The delay in STT flows into Altamira has led us to increase our expections for Mexican LNG imports vs last month. We now expect Mexican LNG takes in Q4 19-Q1 20 to be mostly flat y/y at 2 Mt, compared to a previous 0.3 Mt y/y decline.

System balancing issues will also require some cargoes to continue to be delivered into Manzanillo, even after the Wahalajara pipeline system comes online. Our balances assume the full Wahalajara system will be operational from Q3 20, but the system’s history of delays means significant downside risk remains. The delay of STT flows into Altamira have driven us to soften the drop in Manzanillo LNG takes once Wahalajara comes online. We peg Mexican LNG imports in 2020 to now drop by 1.8 Mt y/y as opposed to a forecast 2.6 Mt decline last month.

Pre-salt output and gas reinjections are growing

We have previously highlighted the accelerated growth of gas reinjection into wells slowing the growth in marketable gas production from the prolific pre-salt formations in Brazil. As a result, we maintained a conservative view on Brazilian LNG import declines.

The latest ANP figures have only reinforced our view as reinjections reached an all-time high of 1.55 bcm (+0.4 bcm y/y) in August. Gas consumption in exploration and production also peaked at 0.5 bcm (+0.04 bcm y/y) during the same month. Marketable gas production figures are only available until July, but year-to-date marketable production has so far declined by 0.6 bcm y/y, offsetting an increase in gross production of the same magnitude. Moreover, pipeline imports from Bolivia continued to decline y/y.

The 1.5 GW CCGT of the Sergipe LNG-to-power project has begun commissioning and will enter operations in January 2020. We estimate the power plant will import around a cargo a month through its FSRU. The start-up the Sergipe CCGT has led us to now expect Brazilian LNG imports in 2020 to be flat y/y at 2.5 Mt. This is up from last month, when we had pegged Brazilian LNG imports to drop by 0.3 Mt y/y in 2020. Any small increase in marketed gas that could curb Brazilian LNG imports into the south are now likely to be offset by Sergipe demand in the northeast.

Fig 1: Brazil reinjection, E&P consumption of gas, bcm Fig 2: Argentina gross gas production, bcm
Source: ANP, Energy Aspects Source: IAPG, Energy Aspects

 

For or against Vaca Muerta?

Argentina’s newly elected president Alberto Fernandez has previously highlighted the importance of Vaca Muerta in rescuing the country from its deep economic recession. However, expectations of tighter capital controls to protect international reserves are likely to slow down much needed international investment. Freezing subsidised power and gas utility bills will squeeze revenues of Vaca Muerta drillers, provided the new government also tries to keep a lid on gas production subsidy payments.

For now, we await a clarification of Fernandez’s plans for the economy and energy sector and have kept our forecasts for LNG imports in Argentina and Chile unchanged from last month. The importance of Vaca Muerta as a source of revenue, foreign investment and reducing the trade imbalance is clear. However, policy instability and any lurch towards economic nationalism would likely deter foreign investment into Vaca Muerta. In the meantime, YPF is soon to sell its first LNG cargo, in mid-November, while increases in domestic production continue. September gross production increased by 0.2 bcm y/y to 4.1 bcm.

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