Activity underway in the Americas

Ruth Liao, ICIS, USA, explores the LNG sector in Latin and South America, considering how historic drought has boosted LNG demand in the Americas.

The role of LNG as a swing supplier for Latin America has never been more pronounced than this year, as the region looks to set new historical highs for imports into Brazil for the first half of 2021, while imports into Argentina and Chile are also higher.

The Americas as a whole makes up approximately 5% of global LNG demand, substantially smaller than key markets in Asia and Europe. But particularly for Brazil and Argentina, the buyers in these countries are more exposed to the spot market as both solely rely on short-term cargoes and lack contractual supply.

While some new import capacity is expected to come online this year, such as the Puerto Sandino LNG project in Nicaragua and small scale imports into Pichilingue, La Paz, Mexico, competing gas supply and the growth for renewables was previously threatening to push out LNG demand.

Particularly in 2020, LNG demand from countries such as Mexico, Brazil, Argentina, and Chile was in decline, as the COVID-19 lockdowns restricted economic and industrial activity.

However, South American importers have faced various factors for LNG demand this year: weatherrelated drought in Brazil, lower domestic gas production in Argentina, and a lack of Argentine gas pipeline imports into Chile.

This has given the US an advantage to become the lead LNG supplier into the Americas, given the shorter shipping distance to Brazil and Argentina compared with Asia, as well as the flexibility of supply sourced by various portfolio sellers and traders.

Brazil’s demand soars

Severe, prolonged drought conditions not seen in almost a century, along with economic rebound, have spurred Brazil’s LNG imports to all-time highs and have propelled the country to the region’s top importer in the first six months of 2021.

Brazil has imported 2.7 million t of LNG in the first six months of 2021, according to ICIS LNG Edge, more than three times what the country imported the same time a year ago – which was 742 000 t.

In 2020, the country was cushioned by ample rainfall and hydropower generation, as well as lower demand as a result of COVID-19 restrictions.

However, starting in March 2021, drought conditions have persisted in the central and south regions, where the country has more concentrated hydropower generation, particularly in the south and southeast.

State-run energy company Petrobras’ dramatic acceleration of LNG imports in 2021 significantly changes the company’s LNG position from one year ago, when ample higher domestic gas production also kept the buyer largely out of the spot market.

Due to its variable demand dependent on rainfall and hydropower reservoir levels, Petrobras solely relies on the spot market, although the South American buyer has one vessel, the 166 000 m3 Magellan Spirit, under charter to lift cargoes on a free on board (FOB) basis.

Petrobras typically purchases on a slight premium to the ICIS Dutch TTF benchmark. Sources said previously that the premium was usually approximately US$0.10/million Btu above the TTF.

Brazil has also been importing power from Argentina, which subsequently supported LNG demand into Argentina and was one of the reasons behind the most recent buy tender, sources said.

According to Brazilian grid operator ONS, Brazil will import power from 19 June through to 25 June from Argentina through the Garabi I and II power plants operated by Enel.

Brazil imported no cargoes between June and September 2020, but imported seven cargoes in May 2021 and 14 in June 2021, an all-time high since the country began importing in 2008.

The majority of the cargoes imported in the first half of 2021 came into Petrobras’ floating storage regasification unit (FSRU) in Guanabara Bay, which received 30 cargoes. Petrobras’ FSRU at Salvador received 14 cargoes. The company’s Pecem terminal in the northeast received two cargoes, with that region receiving more plentiful rainfall than in other parts of the country.

Figure 1. Brazil leads in LNG imports in the Americas as Mexico wanes.

Figure 2. 2020 - 2021. Severe drought in Brazil ramps up LNG imports.

Figure 3. Percentage change. Highest 1H21 growth seen in Brazil and Argentina.

Brazil fires up private terminals

Brazil has two privately-operated LNG import terminals, Sergipe and Acu, which so far have not received much cargo activity this year. However, this may change as the government has now mandated for utilisation of all thermal power plants to run.

On 30 June, the 162 000 m3 Golar Glacier from the US Sabine Pass plant arrived at Sergipe – the first cargo that the terminal has received since May 2020.

Argentina’s winter extends

Argentina has also seen an increase of LNG imports, with 1H21 imports up 72% y/y, according to ICIS LNG Edge (Figure 3).

Argentina primarily purchases LNG for its southern hemisphere winter, although this year, lower domestic gas production was another factor behind state gas distributor IEASA’s LNG buy tenders.

Argentina’s state-run producer YPF discontinued its export project Tango FLNG after the producer declared force majeure in 2020 – less than a year into operations from the Bahia Blanca port.

Bahia Blanca then resumed back into an import terminal in 2021.

Decisions to cut back on upstream investment during the COVID-19 pandemic in 2020 have also had an impact on domestic gas production this year, as lower production was one of the main reasons to resume imports into Bahia Blanca.

Labour strikes in the Neuquen Basin that began in April, primarily by health workers that looked to gain access to better care during COVID-19, caused disruptions in oil and gas logistics that had an impact on produced volumes, coinciding with the start of winter demand.

IEASA has now issued five spot LNG tenders for 2021 delivery, with an import season that started earlier than last year and is now prolonged into September.

Chile imports increase

Chile’s LNG imports were the next largest in the Americas, as the country imported nearly 1.7 million t for the first six months of 2021, according to ICIS LNG Edge.

This was an increase of approximately 38% compared with the same time last year.

Chile primarily receives LNG under long-term contract for its terminals Quintero and Mejillones, as Quintero offtakers receive term supply from portfolio seller Shell, while Francebased ENGIE is the majority owner of the Mejillones terminal and mainly receives LNG from fellow French supplier TotalEnergies.

Chile’s gas imports via pipeline from neighbouring Argentina, which were resumed in 2016 with the increase of Vaca Muerta production, have dwindled this year due to the higher demand for gas in Argentina. This, too, led to Chile’s increased appetite for LNG.

Consortium GNL Chile tendered for one spot cargo for late July for Mejillones as a result of increased thermal power plant demand, following lower-than-expected hydropower generation, but the award of the tender also coincided with the start of the rally of Asian LNG spot prices.

It is unclear whether GNL Chile will tender again this year given the historically-high summer spot prices for LNG as a result of Asian demand and soaring European hub prices.

Mexico takes more US gas

Mexico, once a key LNG importer in the Americas, instead has continued its downward trend in consuming LNG in 2021, given its proximity to the US and its reliance instead on gas pipeline imports.

Given the increase of US pipeline gas imports and lower domestic demand, Mexico already saw its lowest amount of LNG imported in 10 years in 2020.

Mexico imported 366 000 t in 1H21, approximately 61% lower than the same time a year ago. Increased cross-border pipeline capacity, particularly within the so-called Wahalajara pipeline system connecting West Texas gas down through Guadalajara in southwest Mexico, brought more US gas down into the country.

Mexico’s newest LNG terminal, the small scale project developed by New Fortress in La Paz, is due to have become operational in July. The project will supply two power plants operated by state-run electricity company CFE and is expected to help alleviate some of the soaring power prices seen in the resource-stranded Baja California peninsula.

West Coast liquefaction developers, meanwhile, continue to market offtake capacity from various projects.

The 2.5 million tpy Costa Azul LNG export project in Ensenada, under construction by US-based Sempra LNG, remains the only export project to be financially sanctioned in 2020.

Looking ahead

With perhaps the exception of Brazil, the rest of the Americas is not likely to undergo any structural LNG import growth in the next few years.

Chile has invested more heavily in renewables and is looking to the burgeoning hydrogen market, while other smaller projects such as El Salvador have continued to seek financing and have not progressed in its timeline.

In the Americas, LNG is expected to be continually relied on in times of swing demand, particularly during lower rainfall, higher power demand-driven appetite, and to offset any domestic or border production disruptions. The flexibility of floating LNG terminals, particularly in Argentina and Brazil, also allows for the ease of transferring infrastructure if and when demand patterns shift.

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