Industry Trend Analysis - Drought Will Not Reverse LNG Import Decline - JAN 2018

BMI View: A continued drought in Brazil will not result in higher LNG imports. Improved conditions in the Southern region and electricity imports will offset dema nd in Q4 while increased domestic supplies will cap liquefied gas purchases over the next year.

Dry conditions continue to plague Brazil, extending a drought which began in November 2014. Water levels at hydropower reservoirs across the country remain low, threatening supplies of electricity. Brazil's heavy reliance on hydropower - at an estimated 65.8% of total generation - has proven particularly unfavourable over the past three years, a risk we previously identified before the drought began ( see ' South American Power: Natural Gas To Grow In Importance ' , September 30 2014).

Hydropower's underperformance will increase Brazil's reliance on thermoelectric generation, the vast majority of which (69.0%) is generated via natural gas. In years past, this resulted in an increase in LNG imports as domestic supply growth slowed and bilateral pipelines connecting to Bolivia were filled. However, we believe that trend is unlikely to be repeated over the next several months given improving conditions at southern reservoirs and extended maintenance at Brazil's 1.9mn tonnes per annum (mntpa) Pecem regasification terminal.

Most Regions Well Below Capacity
Brazil - Hydropower Volume Levels by Sub-System, %
Source: Operador Nacional do Sistema Eletrico, data as of Nov 12

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