Latin America’s uncertain LNG future
Old-guard importers are fading, but new markets are opening. The region’s exporters are adapting to the US threat
Latin America doesn't suck in huge quantities of liquefied natural gas like northeast Asia, or feed the world's thirst on the same scale as Australia or Qatar; but it has played an increasingly important role in the global gas trade in recent years.
The Southern Cone countries—Brazil, Argentina and Chile—have been the region's stalwart importers. The region put itself on the LNG trade map earlier this decade. Severe droughts in Brazil forced the country to burn far more gas than usual, much of which it brought in from LNG markets. At the same time, Argentina's demand was surging and its production sliding, which saw it turn to LNG markets to plug the gap. In 2014, the Southern Cone countries alone brought in 12.32m tonnes.
The question for gas traders is: will that year set the high-water mark for Southern Cone imports? While gas demand continues to grow across all three countries, that doesn't mean more LNG will be needed. The return of hydropower to Brazil and higher gas production in Argentina meant that by 2017 the Southern Cone imports had fallen to 8.24m tonnes, 35% off the 2014 peak, according to data from the International Group of Liquefied Natural Gas Importers.
Brazil and Argentina both have ambitious plans—and huge gas reserves—to expand domestic production. Argentina is drawing billions of dollars a year into the shale-gas-rich Vaca Muerta play, which is already starting to lift production. Daniel Redondo, a senior energy ministry official, said earlier this year that the combination of rising domestic production and a more flexible pipeline supply deal with neighbouring Bolivia could allow it to eliminate LNG imports altogether as soon as 2020.
Brazil's vast pre-salt gas reserves are its best bet to reduce costly LNG imports. The main focus of new pre-salt projects in the coming years will be oil, but crude will bring a lot of associated gas along with it. The key question is whether Brazil will be able to build the infrastructure needed to make use of all the gas. If it can, Brazil and Argentina's LNG markets could be all but dried up in the next decade. Neither country has long-term supply deals locking them into the LNG market.
While demand from the region's stalwart importers looks vulnerable, the combination of increased market flexibility and novel technologies like floating regasification is opening new markets. In recent years, Colombia, Jamaica and the Dominican Republic have all started importing LNG. Central America is another sizable potential market, though it faces challenges financing and building LNG and gas transport infrastructure.
In 2017, the Caribbean and Central America regions imported just less than 2m tonnes of LNG, but a recent study from the Oxford Institute of Energy Studies found the market's total potential was as much as 18m tonnes a year. It's a particularly enticing opportunity for new US exporters, which have a potentially large untapped market on their doorstep.
Latin America is also home to two sizable exporters: Trinidad and Tobago, as well as Peru. Both industries were built with the intention to supply the US, which a decade ago was expected to be the world's largest importer. Now, they are feeling the heat from a US that's emerging as an export giant and threatens to undercut their prices and steal market share.
Both have responded to the loss of the US market by diversifying, in particular looking to Asia's growing demand. It has been a mostly successful strategy but they will have to continue competing on price with their US rivals to keep their market share.