Argentina, Brazil set to lose most Bolivian gas imports by 2025

Bolivian gas will become a scarce commodity in coming years and as a result, importers Argentina and Brazil will face a challenge.

The two countries, whose combined gas demand is set to grow from an estimated 76.5 cubic metres (bcm) in 2020 to 90 billion bcm in 2025, will not only need to replace lost import volumes, but will also need to make up for a larger supply gap as domestic production will be insufficient, a Rystad Energy report finds.

Rystad Energy estimates Argentina’s gas demand in 2020 at 52.5 bcm and Brazil’s at 24 bcm. Their combined demand is set to grow to almost 90 bcm in 2025, as Argentina’s will grow to 60 bcm and Brazil’s to 29.6 bcm that year.

However, domestic supply lags demand. Brazil’s own supply is estimated at just 20.1 bcm for 2020 and Argentina’s at 42.2 bcm, translating to a combined 62.3 bcm of supply from the two countries – 14.2 bcm below demand levels this year.

The gap will only widen in 2025, as combined supply will rise to 72 bcm, creating an import need of an additional 18 bcm to match demand.

Currently, Bolivian gas exports to Argentina and Brazil are estimated at a combined 9 bcm for 2020. Bolivia’s declining gas production and increasing domestic demand is expected to drive exports to its two neighbours to just three bcm in 2025, a third of current levels. This means that in 2025, the two South American powerhouse economies will still need to source an additional 15 bcm of gas, likely LNG.

“Even though Argentina and Brazil have extensive gas resources, a lack of pipeline interconnections and low investments pose hurdles in meeting rising domestic demand.

This, coupled with lower gas exports from their traditional trading partner Bolivia, has triggered the need for a significant increase in LNG imports in the near future,” said Rahul Choudhary, upstream analyst at Rystad Energy.

Both nations hold large gas resources of their own, in the form of offshore associated gas in Brazil, and in the form of shale gas in Argentina. However, developing these resources requires time, especially given the limited infrastructure and high costs of development.

Thus, in the current low-price environment LNG provides a cheaper alternative, given the sufficient import infrastructure that already exists in the region.

Brazil is set to be at the centre of LNG demand in Latin America over the next few years as the country expects natural gas to play a greater role in power generation. The country currently has three regasification units in operation with a total annual regasification capacity of around 15 bcm. This capacity is set to grow with three new projects in advance stages of development, adding a total estimated capacity of 15 bcm.

Of these projects, the Sergipe unit came online in early 2020 while the under-construction Acu Port project is expected to come online by 2021.

The third project involves capacity expansion of an existing LNG terminal at Rio de Janeiro, from seven bcm to 11 bcm, which is expected to be completed by late 2020. Argentina is also looking to bolster its LNG import capacity, increasing its regasification capacity by six bcm at its existing LNG terminal.

Apart from Brazil and Argentina, Chile and Uruguay also each have an LNG regasification terminal set to come online in the near future.

Chile and Uruguay plan to reduce their dependence on Argentinian gas imports as Argentina has not been able to provide a stable, uninterrupted supply of gas due to its fluctuating supply and rising domestic demand.

In Latin America, LNG prices have become more competitive in comparison with gas imported via pipeline, Rystad said. Since 2019, imported LNG prices in Brazil have been lower than domestically produced gas, as well as gas imported from Bolivia.

In 2019 the price of gas imported from Bolivia averaged US$8/Mcf while LNG import costs averaged US$5.50/Mcf. In 2020, Bolivian gas came under significant pressure as LNG prices dropped below US$4/Mcf, while Bolivian prices remained above US$7/Mcf.

Although LNG prices are expected to rise with the post-pandemic recovery of global demand, they are likely to remain well below prices for imported Bolivian gas in the future, Rystad continued.

Bolivian exports declining

In 2014, Bolivia recorded its highest gas production, but output has since plummeted. Given Bolivia’s maturing fields and in the absence of recent discoveries, production declined by almost 25% in 2019, a year when Brazil and Argentina imported close to 70% of produced gas.

Bolivian gas supply also took a hit from the lack of hydrocarbon sector investment. In 2019, the country announced a 30% reduction in its gas reserves from the previously estimated 280 bcm to 200 bcm. This led to a decline in exports as the country catered to its own steadily rising gas demand. The low supply, coupled with recent political instability, has led importers to avoid any long-term contracts in the country.

Furthermore, Bolivia’s contract to supply a minimum of nine bcm of gas annually to Petrobras expired in December 2019. Petrobras signed an extension agreement in 2020, but only after cutting the original contracted minimum volume by 60% to only 3.6 bcm.

Bolivia also exports pipeline gas to Argentina under a supply contract, which will expire in 2026. However, Argentina is not inclined to buy Bolivian gas in the future, as it plans to revitalise its domestic production.

Source: Oil & Gas Journal