Forum: US LNG may play part in South American countries' plans

Oct. 16, 2017
US LNG exports could play an important role in several South American countries' future energy strategies, speakers indicated during an Oct. 5 discussion at the Atlantic Council in Washington, DC. But the countries' governments also will be working out where private entities might have larger roles in operations where state-run entities previously have been dominant, they added.

US LNG exports could play an important role in several South American countries' future energy strategies, speakers indicated during an Oct. 5 discussion at the Atlantic Council in Washington, DC. But the countries' governments also will be working out where private entities might have larger roles in operations where state-run entities previously have been dominant, they added.

"It's a happy coincidence that Latin American countries are restructuring their markets as the US begins to export more LNG. Energy security will be important as they consider their needs," said Sue Saarnio, deputy assistant secretary at the US Department of State's Bureau of Energy Resources.

The discussion's moderator, David L. Goldwyn, president of Goldwyn Global Strategies LLC and chairman of the council's energy advisory board, said, "Not only is there a growing role for LNG in the hemisphere, but government regulatory structures are changing to accommodate it. It's very encouraging."

Protections for foreign investors will be important, and countries in South America's Southern Cone have made more progress in this regard so far than the ones that are farther north, Goldwyn said.

Assessments by officials from Argentina, Brazil, and Colombia showed that situations and outlooks vary from country to country. "LNG already is an important part of our supply needs," said Gonzalo Aguirre, national transport and measurement of hydrocarbons director in Argentina's Energy and Mining Ministry.

Natural gas represents 54% of the energy the country consumes, and the government hopes domestic production increases 30% in the next 15 years, Aguirre said. Power generation, which is growing, is the biggest consumer, and construction of a third LNG import terminal may be required in addition to the two that operate during winter months, he said.

May reach smaller markets

"We think LNG has become part of our supplies. It could help us start to supply smaller markets where service previously hasn't been available," said Jose Maria Castro, general manager at Sociedad Portuaria El Cayao (SPEC), Colombia's first LNG import terminal, which has been operating since December 2016.

"LNG started in Brazil in response to supply threats from Bolivia in 2006," said Giovani Machado, who supervises the natural gas and biofuels department at Empresa de Pesquisa Energetica, Brazil's energy planning agency. Hydropower now supplies 60% of the country's electricity but probably will not be expanded because of environmental issues surrounding new reservoirs, he said.

"Gas now has 10% of the energy matrix, but it's growing larger. We anticipate we'll need more LNG. The key will be to find the right business model. There could be six new terminals," Machado said. Weather affects Brazil's power supply uses, with hydroelectric plants operating during the dry season, he noted.

"We are constructing a new market design amid existing and planned needs," he said, adding that 60 associations have been consulted already about their projected needs.

Integration with other countries is at varying stages and will need to be addressed, the speakers agreed. Argentina used to export gas to Chile but now has to import from its neighbor, Aguirre said. It also is importing gas from Bolivia, which it hopes to replace with new domestic unconventional production, he added.

"We're still trying to normalize our domestic operations, but in another 10 years, we'll need a legal framework to resume trading with other countries," Aguirre said.

Integrated to a degree

Bolivia, Brazil, and Argentina's systems are integrated to a degree, but need to be enhanced in the South American area known as the Southern Cone, Machado said. Castro noted that northern South America's weather conditions are the opposite of those in countries farther south, which could make it possible to create synergies.

"Sharing the costs and risks of LNG is a huge discussion in Brazil," said Machado. "If all of the burden is put on gas-fired power plants, it won't be competitive. The future will be more complicated as private entities come into the system. Somehow, they will need to find a business model. The arrangements we have today are not optimal, but they are working out."

Bolivia historically has been a volatile gas supply source, the speakers agreed. "We have no doubt it potentially could add to its reserves, but we haven't seen many investments there," said Machado. "We believe that after 2021, volumes will drop from 30 million cu m/day to 20 million cu m/day, but it could go as low as 16 million cu m/day. There are plans to go forward with integration. We expect Bolivia to be an important supplier in the future."

Aguirre said that in the last 12-15 years, Argentina has become a gas importer after historically being an exporter. "If we resume exports, it probably will be to Chile because the infrastructure is in place," he said.

Asked whether future LNG imports will use long-term contracts or spot purchases, Castro said Colombia has been buying larger on spot markets, but long-term contracts might be possible in the 2020s.

"We see there's a risk," said Machado. "We don't expect gas to be cheap forever. A lot more will be coming from the US as LNG. We want to have a diverse portfolio, with open markets from private suppliers. We want a real market, not a small one."