LNG in Latin America: A tale of two markets
Published by Jessica Casey,
Editor
LNG Industry,
Despite gas deposits totalling at least 7.3% of global reserves and gas usage accounting for only 6.3% of global consumption, pointing to future export opportunities, Latin America and the Caribbean remain a net gas importer, with only Trinidad and Tobago and Peru regularly exporting LNG in meaningful quantities. Declining production from mature fields, inhospitable terrain, and a lack of regional gas interconnection remain barriers to gas self-sufficiency and estimates suggest that, without additional development, gas imports will potentially soar to 12 billion ft3 /d from current levels of 5.2 billion ft3 /d by 2035.
The governments of Latin American and Caribbean gas producers have had to strike a fine balance between supporting domestic industry and regional gas demand (particularly in relation to using gas to provide back-up generation power or to decarbonise oil or coal fired industry) and meeting their net-zero commitments, with the ability to export LNG to more lucrative international markets.1 Coupled with this, historical regional gas producers are experiencing declines in production and higher extraction costs from more mature fields. Bolivia, for example, whilst still a key regional exporter, has seen natural gas production fall from a peak of 2.1 billion ft3/d in 2014 to 1.3 billion ft3/d in 2023, as their reserves become more difficult and expensive to extract at commercially viable levels, leading to failures to fulfil volume requirements under export contracts. This repositioning of countries as exporters is resulting in the redirection of gas flows in existing infrastructure as the market reacts with energy companies from Brazil, Argentina, and Bolivia, for example, in discussions to reverse the flow of the pipeline between the three countries (currently flowing from Bolivia to Argentina) to allow Argentinian gas to be exported to Brazil via Bolivia.
Despite this, new discoveries, the changing global political and economic landscape, and policy shifts by the LNG market’s key players are presenting opportunities for Latin America and the Caribbean market to assert itself as both gas self-sufficient, and potentially a key exporting region.
Fuelling growth: The role of LNG imports in Latin America and the Caribbean
With more regasification capacity than any other country in the region, Brazil remains one of the largest LNG importers in the region and is the sixth largest importer of US LNG globally. Whilst traditionally Brazil has been reliant on hydropower, changing weather patterns – both in terms of rainfall quantity and the timing of wet seasons since 2021 – have caused a rebalancing of the sources of its power production, increasing its reliance on gas-generated power to replace shortfalls in its hydropower production. Whilst gas as a percentage of its energy mix has varied year on year, this peak reversed a decline in import levels since the previous high in 2014. Brazil expects to launch a power auction in 2024, with expectations that ‘base’ electricity supply will continue to transition from hydropower to thermal gas plants, adding certainty to import volumes as gas moves from a replacement source to a core constituent of its energy mix, fuelling import requirements.
The transition from hydropower to gas, however, is not unique to Brazil, and depleted hydropower reservoir levels elsewhere in the region have caused a surge in LNG import volumes. The significant distances from import terminals and the challenging topography of Brazil mean that transportation of pipeline gas remains prohibitively expensive, meaning LNG is one of the only ways to safely deliver affordable gas to regional industrial and power sectors. With declining domestic gas production, and a forecast decline in imports from neighbouring Bolivia, Brazil has taken advantage of the recent liberalisation of domestic gas regulations to lead the region in new LNG import projects, with recent developments in Barcarena and Santa Caterina commencing operations earlier this year. However, key challenges for Brazilian LNG import terminals remain: a lack of pipeline interconnection and liquidity in local gas markets act as an impediment to the development of local LNG projects. Historic issues have also included underutilisation, with the average Brazilian LNG import terminal operating at under 40% in 2020. There is growing sentiment within the market that this is likely to change in light of the next power auction, and with new facilities being set-up as multi-user import facilities, as opposed to standalone single-user LNG-to-power terminals – creating greater liquidity in the market and driving competition in pricing and product offerings from the facilities.
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Read the article online at: https://www.lngindustry.com/special-reports/15072024/lng-in-latin-america-a-tale-of-two-markets/
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