Natural Gas & LNG Trade in the Americas

Wolfgang Meinhart / CC BY-SA 3.0

The surge in US natural gas production as a result of the shale boom has implications for gas and LNG markets all over the world. In Latin America, many countries will face challenges in meeting demand for natural gas, but changing market conditions, opportunities for integration and new technologies present key opportunities for the region, according to participants at a natural gas workshop co-hosted by the Inter-American Dialogue and the Inter-American Development Bank in Washington, DC.

Eight years ago, the United States was expected to be a natural gas importer of last resort. But today, thanks to the shale gas revolution, the US is poised to become a major gas exporter. In order to facilitate US exports, pipelines to Mexico and liquefied natural gas (LNG) export terminals are currently undergoing construction at a previously unprecedented rate. LNG facilities once designed to receive imports are now being converted to export terminals.

Global LNG demand is projected to reach approximately 513 Bcm by 2020, with around 68% of incremental supply coming from the US and Australia, according to Liliana Díaz, Senior Managing Consultant at the Berkeley Research Group. Díaz noted that Asia will drive demand for LNG to 2020, with China and India/South Asia expected to represent 123 Bcm, or 66%, of global incremental demand. By 2020, 163 Bcm of supply will flow from 23 new liquefaction plants.

In 2013, South America had a total demand for LNG almost on par with China, with the majority of purchases on a spot and short-term basis, not underpinned by traditional 20 year contracts. Benjamin Gage, Director of Global LNG at IHS, contended that importers such as Argentina and Brazil, which are accustomed to short-term spot purchases, will benefit from a spot market flush with natural gas. Increased supply from the US and Australia together with less than expected demand from Chinese and European markets will create favorable conditions for these importers.

IMG_7871While Brazil’s investment in gas fired power is likely to grow, the country’s ultimate demand for LNG will be determined by the ability of hydroelectric power plants to meet demand for electricity. Argentina has had a gas market supply deficit for some time, with gas imports often diverted from the industrial sector and allocated almost entirely to the country’s residential sector. Chile is an exception, according to Gage, as it is the only nation in the region that can currently afford to pay for long-term LNG contracts. Natural gas is extremely important to the country’s electricity matrix, accounting for almost 48% of power generation in 2014.

Though Central American and Caribbean markets make up only a small fraction of global gas and LNG trade, displacing the region’s dependence on  fuel oil and diesel for power generation with natural gas could cut electricity prices in half.  The Caribbean, followed by Central America, pays the highest electricity prices in the Western Hemisphere. Ramón Espinasa, Lead Oil and Gas Specialist at the Inter-American Development Bank, stated that the primary strategy for growing gas supply to the Caribbean is focused on large gasification plants and smaller vessels with compressed natural gas or LNG to supply neighboring countries. For Central America, he noted the possibility of creating two gas hubs, one for the northern triangle and a second in Panama for southern Central America.

Workshop participants concluded that Latin American countries have a diverse set of options for growing gas imports. Importing countries in South America will likely benefit from low LNG spot prices to help meet demand for power generation. The Caribbean and Central America face larger obstacles, principally the capital costs necessary to cover import projects, however private sector investment could help mobilize regional integration and facilitate larger volumes of gas trade.

Findings from the workshop will be incorporated into the Dialogue’s forthcoming working paper on the impact of the North American energy boom on natural gas and LNG markets in Latin America.

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