GGP: The vanishing LNG market in Brazil
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This is an excerpt from a paper by the Oxford Institute for Energy Studies published in April 2017.
Over the past two to three years growing LNG demand in South America has provided an important outlet for LNG supply, in particular in 2016 when the majority of new US LNG exports ended up being delivered to the region. However, towards the end of the year and into 2017 that extra demand has fallen sharply, due to a number of factors discussed in this Comment. The overall conclusion, though, is that just as the much anticipated wave of new LNG projects is set to come online, so one of the major growth markets has gone into decline. This may be a temporary phenomenon, as it has much to do with weather patterns and economic growth, but the rise in Brazilian domestic gas production suggests that at least one longer term trend is pointing toward lower LNG requirements, at least in the short to medium term. This Comment assesses the overall state of Brazilian (and Argentinian) LNG demand and discusses the potential impact on regional and global gas markets.
Introduction
Brazil started importing LNG in 2009 as an insurance against a repeat of a power shortage similar to the one which crippled the economy in 2001, and which had such strong repercussions for the 2002 presidential election. The Brazilian power sector is heavily dependent on hydroelectric plants, whose availability is not only impacted by climatic phenomena but also by the government’s decision to restrict the construction of plants with large reservoirs, favouring instead plants fed by rivers. In the period 2011-2015, imports of LNG increased dramatically as the Brazilian economy was still growing and a prolonged drought resulted in the virtual depletion of regional hydro reservoirs.
Petrobras is currently the sole importer of LNG and owns three FSRU terminals in the states of Rio de Janeiro, Bahia and Ceara. Other private projects have been announced, all based on a gas/power configuration, but only the Golar Power-led CELSE 170,000 m3 FSRU terminal and 1516 MW power plant is getting off the ground. This project will be built in the north eastern state of Sergipe with completion planned for 2020.
In 2015 Petrobras imported record volumes of 5.7 mtpa (7.56 Bcma) and spent $2.75 billion FOB on LNG imports. Over the last 4-5 years, Brazil and Argentina (which imported 4.7 mtpa in the same year) have become rising stars in the LNG importing club. Some of the LNG imported by Petrobras was re-routed to Argentina and other international markets, as the company started building its international trading business. The record year for LNG regasification in Brazil was 2014 with an average of 19.93 MM m3 /day processed in the three terminals. During the 2014 presidential election campaign, the incumbent president wanted to ensure that the lights would not go out, so the government directed Petrobras to run its gas-fired power plants virtually on base load, which required large volumes of LNG to complement domestic and Bolivian gas supplies.
Ieda Gomes
The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.