1. NS4960 Spring Term 2017 Latin America: LNG Market
Oxford Analytica, Latin America; LNG Market Faces Muted Outlook May 24, 2017

2. Overview I
South America might be expected to play an important role in the LNG business
Region has major oil and gas reserves and
Around 5% of global GDP
Both produces and consumes LNG
However factors affecting LNG production and consumption are national and global rather than primarily regional
In global terms, region neither a major producer nor large market

3. Overview II
Over the next 20 years global LNG supply is forecast to grow strongly
Particularly in the early years
Much of the supply coming from the United States and Australia
BP’s Energy Outlook 2017 looking ahead to 2035 does not identify South and Central America as a material LNG supplier
Region also remains a modest consumer with around 3% of all LNG imports

4. Overview III
South and Central America has 4% of the world’s proven gas reserves
Of the region’s two LNG producers
Trinidad and Tobago faces a diminishing volume of available gas and
Peru has important gas reserves, but LNG export expansion plans are not currently under discussion
For other countries with large gas reserves
Venezuela has the largest gas reserves in the region but has failed to participate in LNG production
Over a decade ago Bolivia chose not to export gas to the Pacific coast and enter the LNG export market

5. Overview IV
Brazil and Argentina have been significant LNG consumers in recent years
However Brazil will increasingly utilize domestically produced gas
Argentina has major shale gas deposits, but exploitation just starting – potential for LNG production and export but not for some years
Other countries
Chile is an established LNG importer
Colombia is now importing LNG and
Uruguay and Ecuador both have LNG import projects which are proving challenging.

6. Stagnating Production I
Peru LNG had a long-term deal to supply LNG to Mexico, but a pricing dispute ha forced it to seek markets beyond region
With global LNG supplies expected to grow by nearly 50% little near-term incentive to expand production
Trinidad and Tobago well positioned to supply regional markets and beyond – However with gas needed to meet
Methanol production and
Domestic demand
-- with gas reserves declining steadily the future looks challenging

7. Stagnating Production II
Incremental supply from Venezuela is a possibility
However with the country’s uncertain political and economic situation this awaits
Successful negotiations and
The construction of a pipeline connecting to Trinidad’s existing gas pipelines.

8. LNG Demand I Future LNG consumption will depend on
Economic growth
Levels of domestic gas production or
Pipeline gas imports
LNG needs specialized import terminals to handle the minus 160 C product, including regasification and storage facilities
Terminals cost million dollars, depending on scale and associated civil engineering
With floating storage regasification units costs will come down
However strong gas demand is required to satisfy investors that such facilities are needed.

9. LNG Demand II Brazil became and LNG importer over a decade ago
Response to periodic power shortages arising from low rainfall hitting hydroelectric output.
LNG supplements
Domestically produced gas and
Pipeline gas from Bolivia
Meets power generation needs not served by pipeline gas
With three Petrobras-owned import terminals currently operational and two private planned, Brazil’s imports peaked in 2014
Gas usage decreased in 2016 as the recession cut electricity consumption while domestic gas production increased
Petrobras cutting its LNG import capacity and Bolivian gas imports have declined.

10. LNG Demand III
Argentine gas consumption has also fallen and may reduce LNG imports
Liquefying gas in Argentina’s far south and supplying northern domestic markets is an option but shale gas development could interfere with this
Argentne shale gas LNG exports may become a possibility but this would require massive investment
Argentina has a very poor record of supporting foreign investment in its hydrocarbon sector.

11. Intra-Regional Trade I
Expanded Panama Canal not accommodates competitively sized LNG carriers
Reduces transit times and costs and
Offers important regional LNG trading and supply options
Peruvian LNG can now reach Europe
Trinidadian LNG can go to Pacific and Far Eastern Markets and
U.S. LNG can reach Pacific markets and South America’s west coast
In 2016 over half of US LNG cargoes went to South America
Colombia’s first LNG import terminal on its Caribbean coast is now operational. A second Pacific coast terminal has been discussed

12. Intra-Regional Trade II
Chile-Argentina
Chile highly dependent on energy imports
Has two LNG terminals with a third seeking final approval
Previously relied heavily on Argentina pipeline gas
When supplies were cut off more than a decade ago
Left seriously short of gas and
Switched rapidly to LNG
Although longer term it would be obvious market for Argentine shale gas Chile cautious about over-reliance on Argentina
Chile has been importing LNG and degasifying it, supplying Argentina by reversing pipelines originally built to supply Chile with Argentine gas
With Argentine shale gas production increasingly meeting domestic demand this arrangement may cease

13. Further Flexibility I
Increasingly, floating regasification facilities rather than conventional land terminals are being built (around 90% of new projects)
Offer lower cost
Speedier construction and
Greater flexibility
Allowing projects to start with smaller volumes and expand as necessary
Particularly addresses the needs of countries such as Colombia or Chile lacking an integrated gas pipeline network

14. Further Flexibility II
Nearly 30% of LNG deals now done on a sport market or short-term market basis
Makes it easier to meet demand on an “as required” basis
Suits a region where hydroelectric power is subject to rainfall variation, requiring backup gas-fired power generation.

15. Assessment
Latin America lacks a well-connected pipeline infrastructure either
National or
Transnational
Should offer good opportunities for LNG across the region
However increased LNG production around the world over the next few years may inhibit the construction of new LNG production within the region
LNG demand is likely to be met from outside the region, particularly from low-cost US shale gas supplies.