[NGW Magazine] LatAm: ‘choice market for US LNG’

This article is featured in NGW Magazine Volume 2, Issue 13.

It might suit US interests for its LNG to end up in Europe and Asia was expected to be the prime market, but half has gone to Latin America. 

Latin America has emerged as a “market of choice” for US LNG cargoes since the Sabine Pass began operating in February 2016, according to a leading academic.

Half of its 100-odd cargoes had gone to Latin America, including Mexico by April of this year, said Jason E. Bordoff, the founding director of the Center on Global Energy Policy at the Colombia University School of International and Public Affairs. He was addressing the foreign affairs committee of the US House of Representatives in May.

Mexico received the most with 22, Chile 13 and Argentina 7. Meanwhile Brazil and the Dominican Republic received cargoes in smaller numbers, taking in 4 and 2 respectively.

“This is quite a departure from the expectation a few years ago that most US LNG cargoes would find their way to the Asian market, given the high price of LNG at the time,” he said.

Cheniere Energy’s Sabine Pass plant in Louisiana, North America’s first LNG export terminal, was aimed at opening up US gas sales to the rest of the world, particularly Asia. 

Nonetheless, the phenomenal growth in Asian LNG demand in the last decade has come to an end faster than many expected. Until recently, analysts generally considered that tight Asian supply would last until the end of this decade, and many north American LNG producers had targeted exports to Asia.

The unexpected slowdown in economic growth in Asia has pushed North American LNG producers to re-orientate themselves as LNG exporters to either Latin America or Europe. 

Globally, Mexico has been the biggest recipient of Sabine Pass cargoes so far, according to US Department of Energy data published last month. 

Within Europe, LNG cargoes have arrived from Cheniere’s facility at receiving terminals in Italy, Spain, Portugal, the Netherlands, Poland and Malta to date. 

Outside of Latin America and Europe, cargoes have arrived in China and Japan, among others, but in far smaller volumes than was expected. Against the backdrop of changing global energy dynamics, Latin America’s “potential as a destination for US LNG cargoes is set to increase over time,” said Bordoff. 

South America is already the biggest regional market in terms of floating LNG regasification capacity. “This will further expand with the addition of at least two new FRSU terminals in Brazil and Uruguay over the next few years,” he added.  

In addition, Colombia will play a role, since the country has recently joined the ranks of LNG importing countries with the addition of a new floating terminal earlier this year, he said.

LNG overtakes pipeline gas 

Cheniere is the only firm whose terminals are ready to send large deliveries of LNG from the US, but that is set to change as new facilities come online. By 2021, a further four LNG export facilities – which are now being built – are expected to be finished.

By 2018, the US is expected to become a net exporter of natural gas on an average annual basis, according to the US Energy Information Administration (EIA)’s Annual Energy Outlook 2017 reference case.  That contrasts with last year, when the US was a net importer of natural gas, with net imports totalling 900bn ft³.

The new LNG exports are expected to surpass pipeline exports of natural gas from the US by 2020. The US will export all this new gas to “where the market is,” Samuele Furfari, a professor of energy geopolitics at the Free University of Brussels, told NGW. That could mean exports to European countries or Pakistan, which badly needs gas, he added.

“I believe there will be a rise [in US LNG exports to South America] but it is difficult to say when there will be a massive rise to South America,” he said. “The Panama Canal is helping a lot to feed gas to the west side of South America – to Bolivia, Colombia, Chile,” he added.

However, it will depend on the price the LNG can be sold for, because it may still be more convenient to export it to Asian countries like Vietnam or China, he added: “The growth of global LNG will make gas into a commodity and we will have a more flexible market. The market will develop in a more dynamic way but there is no clear picture as yet as to how it will look,” he said.

The extent to which US LNG cargoes will find a market in Latin America also depends on the gas demand in those countries, he noted. They will require less imported LNG if their domestic gas markets grow. Nonetheless, the wider Panama Canal is a “real game changer” meaning companies can transport larger quantities of gas through a very large port, he said. 

The $5bn expansion of the Panama Canal, which took almost a decade, was completed last year. It is set to nearly double the number of cargo that can pass through the shipping lane. 

Chile, Bolivia and Colombia are those Latin American countries that are most likely to develop the region’s LNG market in coming years, said Furfari. Ecuador could also play a part though it is a very small country.

Peru does not need gas and is already an LNG exporter, while Mexico “prefers it own gas” and shares a shale basin with the US state of Texas, he said. “If Mexico is clever it will develop its own shale production. I don’t see it receiving US LNG in future,” he added.

Meanwhile there are some south American countries that need a new type of energy and Argentina must not be forgotten, he added. It has vast shale resources at its Vaca Muerta field, yet to be properly exploited.

The country could create another LNG terminal on the Atlantic Coast, opening it up to more LNG trade, he said. Argentina already imports LNG via the Escobar and Bahía Blanca terminals. Since last year, the country has also been importing regasified LNG by pipeline from Chile, to meet higher demand in the winter.

One of the largest shale deposits in the world, Vaca Muerta contains around 308 trillion ft³ of shale gas and 16.2bn barrels of shale oil, according to the EIA.

US LNG exports to Latin America look likely to focus initially on those countries on the western side of the continent, but further down the line countries like Uruguay, Argentina and Brazil may have a greater role to play. Overall, Latin America looks set to continue as a significant importer of US LNG – at least until Mexico and others develop their own nascent industries. 

Sophie Davies