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Gas demand in South America is expected to grow by some 50 billion cubic meters to 2030, reaching 191 Bcm on the back of increased energy demand and renewable production, which will call for flexible thermoelectric back up generation to balance the system.
However, the potential for the region to significantly develop its LNG market remain uncertain, and very much linked to weather scenarios in the region.
It's what emerges from a report on “South America gas markets and the role of LNG” by Anouk Honore, published by the Oxford Institute for Energy Studies.
“As the region’s economy and population grows, energy demand is expected to continue to increase and become more reliant on natural gas, especially in electricity generation” the report explains.
Despite weaker economic growth somewhat slowing down energy demand for the rest of this decade, “gas demand is still expected to increase.”
“Meeting the needs for both additional generation and additional flexibility will be one of the greatest challenges” as “most new generation will be in the form of renewables, especially hydropower, but most new hydro will be run of the river or have small reservoirs” it says.
“As a result, generation will be even more significantly reduced in dry periods, thus needing more back-up capacity, especially gas plants” it argues, adding that “flexible supply will be increasingly needed in order to match the seasonal, and often volatile dispatch of gas-fired power plants”. That would include both indigenous production and imports, particularly of LNG.
“South American countries will have to increase upstream investment and develop new resources in order to boost production”, with geography, changing regulatory environment and fluctuations in oil prices all representing potential challenges to indigenous gas production.
LNG role linked to weather conditions
However, LNG imports growth scenarios vary significantly, depending on whether more extreme conditions might materialise or not.
LNG imports only started in the late 2000s but reached 17.2 Bcm in 2015. “Despite relatively small volumes at the global scale, representing less than 5% of the world LNG trades, if the pace continues, the region could become an important player reducing the scale of flows to Europe, the swing market for LNG" OIES suggests.
Nevertheless, it notes “conflicting agendas add to the confusion on the future role of LNG, and even the direction of LNG trades”, given that by 2016, three countries (Argentina, Brazil and Chile) were importing LNG while “in parallel, some countries harbour future ambitions to join Peru as LNG exporters when (or if) their national production permits.”
Under one scenario, OIES expects the region to import as little as 7 Bcm/year of LNG in 2020 “under ‘normal’ weather conditions with Bolivian export commitments fulfilled and contracts prolonged."
Brazil, Argentina and Chile will continue to import LNG and will be joined by Uruguay and Colombia, it forecasts, with Peru likely to remain the only exporter. Meanwhile, there will be no region-wide pipeline integration, “but there is a possibility of sub-regional integration around LNG import terminals, as suggested by projects in Uruguay, Colombia or even LNG arriving in Chile and being sold to Argentina,” it adds.
By 2030, scenarios show a potential of 19.5 Bcm/year of potential LNG imports “under ‘normal’ weather conditions and if Bolivia’s renew both its pipeline export contracts at levels allowing Argentina and Brazil to balance their demand” the reports explains.
LNG imports could rise to 30.5 bcma (22.4 mtpa) “in the case of no Bolivian exports, still under ‘normal’ weather conditions,” OIES says.
On the other hand, cold winters in Argentina and dry weather across the region could have a significant impacts on LNG intake. In Brazil alone, it could add up to 35 Bcm/year (25.7 mtpa) of LNG imports (on top of already needed imports) on a dry year by 2030.
“As a conclusion, South America is not expected to be a major future LNG market unless there are extreme climatic conditions, which will not happen every year and will not last many years” the reports points out.
“LNG will remain necessary to supply much needed flexibility, additional volumes, security of supply and to reach new markets far from infrastructure, but there are also major uncertainties on volumes, prices, timeframe, location and even direction of the LNG flows as some importers could turn exporters at times of low demand toward the end of the timeframe.”