LGC highlights potential for gas in the region

LGC hig hlig ht s pot enti al for gas in t he regi on

The 2018 edition of the Latin America and Caribbean Gas Conference (LGC) was held in Mexico City, October 9-11. Promoted by IGU and EnergyNet in partnership with ARPEL, the event is one of a number of initiatives to further the development of the region’s natural gas industry. By Fred Mazo

LGC 2018 brought together some 110 high-level professionals from throughout Latin America and the Caribbean. Delegates included government officials and representatives of energy companies, international organisations, the financial sector and consulting companies. In addition to the main conference and associated exhibition,

there was a meeting of the event’s Advisory Board, a meeting of hydrocarbon agencies, a workshop of the EnergyNet Student Engagement Initiative and a range of networking opportunities.

This article gives a brief overview of the main recommendations and messages that emerged from the conference.

c IGU Secretary General Luis Bertrán Rafecas makes a point.

Policies

Delegates agreed that there are major opportunities in Mexico following the country’s energy reform, in Brazil’s presalt resources, in Argentina’s unconventional resources – particularly the Vaca Muerta shale play, in the potential of the Caribbean market and for regional integration. However, there are challenges, foremost of which is the need for governments to provide a policy framework in terms of legal certainty, clear and transparent rules, respect for contracts and long-term energy planning that encourages private investment.

In this context, Juan Pablo Jimeno, Director of Business Development of AES Mexico, highlighted the project backed by AES and Inversiones Bahia to introduce LNG to Panama, where the industry, regulator and clients worked together. Commercial operations of an LNG regasification terminal and gas-fired power plant at Isla Telfers, Colón, began in September 2018.

For his part, David Rosales Hernández, Director General of Natural Gas and Petrochemicals at Mexico’s

In a panel discussion moderated by Orlando Cabrales Segovia, CEO of Colombia’s Naturgas and IGU’s Regional Coordinator for Latin America and the Caribbean (third from left) are (from left to right): Hugues Montmayeur, Vice President, Argentina, Brazil, Bolivia, Uruguay, Total Americas; Grissel Montes Romero, Executive Director of Planning and Project Bids, CENAGAS, Mexico; Álvaro Tupiassu, General Manager of Gas and Energy, Petrobras; HE Carlos Quispe Lima, Bolivia’s Vice Minister of Hydrocarbon Planning and Development; and Patricio Dare, Strategic Planning Manager for the Latin American Region, YPF.

Energy Ministry (SENER), stressed that the main objective of public policy must be to achieve energy security, that the market is the best mechanism to achieve this and that adequate incentives must be established for the actors.

Orlando Cabrales Segovia, CEO of Colombia’s Naturgas and IGU’s Regional Coordinator for Latin America and the Caribbean, agreed saying that the successful development of hydrocarbon resources in Colombia was thanks to a true public-private partnership.

Fernando Alonso Viñas, Director of Government Affairs at Mexico’s Fermaca, pointed out that the development of infrastructure is linked to economic and social development. Inequality in infrastructure is also inequality in opportunities and development; without infrastructure, there are no business possibilities, and this generates lag. Economic rationality, he said, must prevail over short-term political interests to generate the development of a sustainable energy system that benefits the population of the entire region.

Pricing

Delegates discussed pricing with particular reference to Mexico’s energy reform. Rosanety Barrios Beltrán, Head of the Industrial Transformation Policy Unit at SENER, said prices should reflect scarcity and adequately remunerate the productive sector so that appropriate levels of profitability and reinvestment of capital exist. Controlled tariffs, she pointed out, usually generate low production and underutilisation or insufficient infrastructure. She described how Mexico introduced a new energy model based on recovery

Rosanety Barrios Beltrán, Head of the Industrial Transformation Policy Unit at Mexico’s SENER, addresses delegates.

of production, entry of private capital throughout the value chain and the development of market conditions (open access, transparency and free prices), thus breaking with the previous model based on a state monopoly.

For his part, Luis Bertrán Rafecas, IGU Secretary General, emphasised the importance of carbon pricing as a way to internalise the environmental impacts and ensure that the competition between natural gas and other fuels is fairer, making natural gas and other cleaner fuels more competitive.

In several Latin America and Caribbean countries, delegates noted, there are still significant distortions in energy prices due to the existence of subsidies.

Delegates also noted that the new limits on maritime sulphur emissions coming into force in 2020 could reduce the price of fuel oil with a high sulphur content (depending on the extent to which ship owners switch to alternative fuels rather than fitting exhaust scrubbers). Heavy fuel oil competes actively with natural gas in the electricity generation sector throughout Central America and the Caribbean.

Fracking

Delegates acknowledged that there is widespread concern amongst the general public about hydraulic fracturing and its role in the exploitation of unconventional gas resources. However, Héctor Moreira Rodríguez, Commissioner with Mexico’s National Hydrocarbons Commission (CNH), pointed out that fracking is a longstanding technique used for conventional resources as well. Some 30% of wells in Mexico have been fracked (more than 11,000 wells) and only 18 were in unconventional deposits, he said. Moreover, approximately 50% of Mexico’s reserves need hydraulic stimulation for their development.

In order to contribute to a rational discussion and optimal environmental management, ARPEL has developed a white paper on the subject, which can be downloaded from the association’s website (https://arpel.org/library/ publication/462).

Outlook for the big three

Countries using gas in the Latin American and Caribbean region fall into four broad categories. Firstly there are the big three producing countries

IGU Director Advisor Rafael Huarte Lázaro on a panel.

with large markets and structural gaps between supply and demand (Argentina, Brazil and Mexico).

Argentina

Argentina is developing its unconventional gas resources rapidly and restarted exports to Chile in October 2018. One of its two floating storage and regasification units (FSRU) for LNG imports was returned off lease that month and LNG exports from the Tango FLNG facility (capacity 0.5 mtpa) will start later in 2019. The main challenge is the development of infrastructure that allows demand to be developed and the reduction of costs so that the gas is competitive internationally. Also, the seasonality of Argentine demand given the high residential component leads to the need to rethink regional integration

in the Southern Cone (exports to Brazil, Chile, Uruguay and imports from Bolivia).

Brazil

Brazil’s challenge is to monetise the associated gas produced in the presalt. It is expected that in the next 10 years technological developments will improve the competitiveness of this gas. Therefore, there is a need for lower import (LNG and pipeline) requirements and new contracting conditions with Bolivia. The market is in full transition to an open model.

Mexico

Mexico faces decreasing domestic production due to field maturity and is seeking to attract investments upstream and throughout the value chain. Imports via pipelines from the USA will grow to represent between 80% and 90% of the total supply. The driver for the growth of gas demand will continue to be electricity generation.

Outlook for exporters

Secondly, there are countries oriented to export with small domestic markets (Bolivia, Peru and Trinidad and Tobago).

Bolivia

Bolivia has to face the fact that its main trading partners (Argentina and Brazil) will see their import needs reduced. The main challenges are the development of new markets and the need for upstream investment to develop its resources. Bolivia is developing the

v HE Carlos Quispe Lima, Bolivia’s Vice Minister of Hydrocarbon Planning and Development, asks a question.

industrialisation of natural gas (e.g. urea and petrochemicals) to export higher value-added products. Regional integration and having an overall vision for the Southern Cone will offer great opportunities to diversify markets.

Peru

Peru is an LNG exporter (capacity 4.45 mtpa) and has a relatively small domestic market. Electricity generation is predominantly gas-powered (60%) and only Lima has a gas grid although there are plans to expand the market. Increasing demand and exports requires upstream investments and a new regulatory regime to encourage investment is being discussed.

Trinidad and Tobago

Trinidad and Tobago is a long-standing LNG exporter (capacity 15.5 mtpa). However, domestic gas production is

declining so an agreement was signed in August 2018 with Venezuela to supply gas via a new pipeline from 2020.

Outlook for other markets

Thirdly, there are the smaller and medium-sized markets and those without gas at the moment.

Colombia

Colombia’s domestic gas production is declining and LNG imports started in December 2016 via an FSRU in Cartagena. A Pacific coast regasification plant is under development with an envisaged start-up in 2023. Colombia is expected to consolidate as an importing country as climatic challenges (El Niño) affect hydrology and increase natural gas needs (hydro: 40% of electricity generation, natural gas: 30%), while there few expectations for the development of offshore gas resources.

Chile

The country has a strong focus on renewable energies thanks to its resources. As well as pipeline connections with Argentina, it has two LNG regasification terminals and there is some scope for the development of demand to address environmental issues (air quality mainly in Santiago and the replacement of biomass for heating). There are also opportunities in energy integration with Argentina that are already being developed (natural gas swaps taking advantage of the existing large interconnection infrastructure).

Ecuador

Predominantly an oil-producing country with associated gas being used for the industry’s own consumption, Ecuador does have a gas field in the Gulf of Guayaquil with production being used for electricity generation. No great potential development for the development of the gas market is foreseen.

El Salvador/Central America and the Caribbean

El Salvador is developing an LNG regasification terminal associated with a thermal power plant for completion in 2021. The plant leverages the investment but there is also the possibility of developing demand in other markets. This development could be replicated with similar characteristics in other countries of the region. The main driver is the substitution of liquids and coal for power generation. However, the regulation of sulphur in bunkers that will come into force in 2020 will reduce heavy fuel oil prices and affect the competitiveness of gas.

The Dominican Republic, Jamaica and Puerto Rico have already developed LNG import infrastructure. Other countries have small economies and fragmented markets necessitating the development of small-scale models. Coordination and regional integration are necessary for development.

In Central America, the potential for an integrated gas-to-wire model must be considered given the interconnection of the electricity grids of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama via SIEPAC.

Panama

The country’s LNG regasification terminal and gas-fired power plant were inaugurated in 2018. There are great opportunities to become a regional hub, taking into account the potential development of natural gas for bunkering and the Panama Canal.

Paraguay

The country generates 100% of its electricity from hydropower and there is little prospect of a gas industry developing despite being a neighbour of gas-producing Bolivia.

Uruguay

Uruguay generates 95% of its electricity from renewables. There is a small market for gas which is expensive. A project to start LNG imports has stalled.

Possible game changers

Fourthly, there are the possible game changers.

Guyana

Substantial offshore oil reserves have been discovered which will make it a major oil player. It is not clear at this stage whether there will be significant associated gas production.

Venezuela

Venezuela has major gas resources. If they are developed for export in a big way (i.e. over and above the existing agreement with Trinidad) there would be a significant impact on regional markets.

LGC 2019

The Latin America and Caribbean Gas Conferences will continue to explore new opportunities presented by the development of natural gas in the region. LGC 2019 will be held in Mexico City, November 20-22.

Fred Mazo is Regional Manager for Latin America and the Caribbean at EnergyNet. For more information on LGC 2019, visit: www.energynet.co.uk.