Industry Trend Analysis - Latam LNG Imports Have Topped Out - APR 2018

BMI View: LNG imports into Latin America and the Caribbean will trend lower over the next five years on the back of higher domestic production and continued dependence on pipeline supplies. Chile will become the largest importer of LNG in the region through 2022.

  • Regional LNG demand will rise modestly in 2018, from 3.4bcm to 3.7bcm on the back of stronger macroeconomic growth in key importing markets.
  • Brazil, Argentina and Chile will all increase imports this year as investment and consumption in each country increases. Mexican demand for LNG will decline due to strong US dependence.
  • Chile will be the largest LNG importer in the region due to a lack of upstream development and midstream connectivity to producing fields.
  • Latam LNG demand will remain limited through 2022 as domestic natural gas production grows and non-thermal generation capacity increases.

Latin America (Latam) and the Caribbean will remain dependent on liquedfied natural gas (LNG) for the foreseeable future. However, imported volumes will remain below historic levels as the region increasingly relies on growing domestic supplies. LNG imports into both Latam and Caribbean fell by 1.0% y-o-y over 2017, a second consecutive year of declines. Through February of this year, liquefied imports totaled 1.96bn cubic metres (bcm), representing a 17.0% reduction y-o-y.

Running Out Of Steam
Latin America - LNG Imports, bcm
Source: Bloomberg

In 2018, we do expect a slight uptick in net LNG imports as the region's economic recovery accelerates. Namely, rebounding private consumption and investment in Brazil will boost demand for natural gas, a portion of which will be serviced by LNG. That being said, we caution that the majority of demand will be met by rising domestic supplies and pipeline imports (see 'Drought Will Not Reverse LNG Import Decline', November 15 2017).

In addition, the ongoing replenishment of reservoirs will boost utilisation of hydropower, rather than thermal, generation. Over the next five years, LNG import volumes will average lower than historical levels as hydropower generation capacity expands and growing deepwater production is connected to large centers of demand.

LNG Imports Will Remain Limited
Brazil - Natural Gas Supplies, mcm/d
Source: Petrobras

We expect a similar trend in Argentina, where business confidence, supporting private sector capacity expansion and stronger domestic demand will rise as President Mauricio Macri's reform agenda unfolds ( see 'Rebound Set To Broaden', March 2). Natural gas production will grow by an estimated 2.2% y-o-y, offsetting purchases of imported supplies. We maintain that the majority of imports will be serviced by less costly pipeline supplies from Bolivia. However, with the current take-or-pay contract with Bolivia allowing flat import volumes throughout the year, stronger demand will support seasonal LNG demand over the Winter months.

Mexico, which has been the largest Latam importer of LNG in recent years, will limit liquefied gas purchases over the next several years gives its robust dependence on piped US supplies. Moreover, we expect the progression of energy sector liberalistion will recover domestic supplies lost over the past decade, capping imported demand in the process ( see 'Mexican Upstream Bracing For A Comeback', July 21 2017).

Trending Lower
Latin America - LNG Net Imports, bcm
e/f = BMI estimate/forecast. Source: National Sources, BMI

The largest growth in regional LNG demand will come from Chile, where growing macroeconomic activity will contend with stagnant natural gas supplies. We expect real GDP growth in Chile will accelerate in 2018 to 2.6% from 1.6% in 2017 on the back of increased output in the copper sector, increased business confidence and robust consumer demand (see 'Growth Rebound To Continue Into 2018', January 5). This will increase LNG import demand from 4.46bcm in 2017 to an estimated 4.7bcm in 2018. We expect liquefied imports will continue to rise over the next five years, reaching 5.25bcm by 2022.

However, we believe the growth in Chilean LNG imports will not offset declines from elsewhere across Latam. Development of hydropower and renewable generation capacity is expected to grow within the region over the next five years, capping natural gas import demand. We expect demand Latam for LNG will remain below 20.0bcm through 2022.