Global gas shock hinders Latin American LNG

The Covid-19-induced shocks to the global natural gas market, followed by Russia's war in Ukraine, are shaking many Latin American countries' positions as spot-market LNG buyers and nascent exporters.

Russia's suspension of deliveries on its 55bn m³/yr Nord Stream 1 gas pipeline creates a void that the rest of the world will scramble to supply, potentially in the form of LNG. But this will support already higher LNG prices, a liability when many Latin American countries have avoided long-term supply contracts, speakers said at the Institute of the Americas' Latin America energy conference in La Jolla, California this week.

The slowly developing LNG export facilities being built in Latin America now will not benefit from this spike, either.

"It takes about four years for an LNG plant to come on line," said Amine Soudani, manager of TotalEnergies LNG joint ventures in North America. "The shock we are seeing today will take this same number of years to be absorbed."

TotalEnergies 3.25mn t/yr Energia Costa Azul LNG facility on Mexico's Pacific coast, a joint venture with Sempra, was the only LNG facility to receive a positive final investment decision globally in 2020 — at the height of the pandemic, when LNG prices plunged. Mexico has seven projects in development to take advantage of excess and cheaper gas supply from the US, but it has yet to start exporting LNG.

Trinidad and Tobago [and Peru]( https://direct.argusmedia.com/newsandanalysis/article/2366731) are Latin America's sole LNG exporters, with some development also building in Argentina and in Brazil.

But effects of the pandemic delayed final investment decisions on LNG facilities overall by two to four years, said Christopher Goncalves, chair of consultancy BRG Energy and Climate.

LNG losing short-term lustre

Capital is no longer chasing upstream projects — partially because of confusing policy signals over gas' role in the energy transition — delaying upstream development needed for gas supply. Gas, and particularly LNG, is not necessarily seen as the affordable, reliable and cleaner energy solution anymore.

"I feel the damage has been done," in terms of trusting gas supply, Goncalves said.

Not deploying LNG — or another technology that can more easily bring energy beyond pipeline grids — could be a lost opportunity for Latin America, where a large part of the population does not have access to natural gas from a pipeline, said Warren Levy, chief executive of Mexican independent operator Jaguar Exploration.

Consumers paying many times more for energy — such as in southern Campeche, Mexico, compared with northern Nuevo Leon, Mexico, with access to cheaper imports from the US — could lead to even more social conflict, further undermining a chance of improvement.

"We are going to widen the social gap unless we address this," Levy said.

But there will be few incentives now to sell LNG within Latin America. Many of Peru's exports go to Asia, which already takes about 70pc of global supply as it is willing to pay a premium. Much of the new supply to come on line in the next few years will instead likely be reshuffled towards Europe, if Russian supply continues to be choked off, as Soudani noted.

Latin America has lacked coordination between governments — with neither industry nor the US helping to drive this — which could have made LNG a transition fuel for the region, Levy said.

Countries such as Singapore that have focused on energy security with long-term contracts are more immune from the prices spikes, said Juan Pareja, Shell's new business and commercial manager for LNG in South America. Greater ease in development could soften the next shock. But for now, prices are simply reacting to demand.

"What you see is a well-functioning market," Pareja said. "Although the spot prices are not pleasant."

By Carla Bass