Over the past decade, the global energy sector has turned its attention to Latin America thanks to the region’s critical role in the ongoing electrification drive. Latin America produces nearly 40% of the world’s lithium supply and is home to over 65% of global reserves. Unfortunately, LatAm hardly gets a passing mention in another booming industry: Liquified Natural Gas or LNG.
Over the past two decades, the LNG market has emerged as one of the fastest-growing segments in the energy industry, quadrupling in size and doubling its share of global natural gas trade. Indeed, global LNG trade hit 404 million tonnes in 2023, up from 240 million tonnes in 2013.
And, the LNG boom is not over: Shell Plc (NYSE:SHEL) has predicted that global LNG demand will increase by more than 50% by 2040, as industrial coal-to-gas switching gathers momentum in China while Southeast Asian countries use more LNG to support their economic growth.
LatAm continues to largely miss in action in the global LNG value chain. The region has considerable gas reserves, with Venezuela alone having 196 trillion cubic feet in proved reserves compared to 432 trillion cubic feet by the United States.
Currently, only Peru and Trinidad & Tobago export LNG. Peru has seen its LNG gas exports soar amid the global energy crisis that was triggered by Russia’s war in Ukraine. Back in 2022, Peru LNG, the consortium responsible for the country’s exports, increased its LNG deliveries by 70% while shipments to Europe alone saw a 46-fold increase. The Peruvian government even discarded the renegotiation of the consortium’s Camisea contracts in a bid to encourage the consortium to export at full capacity of 4.4 MTPA. Unfortunately, Peru has little capacity to expand exports at this juncture as the government focuses on supplying the local population.
Trinidad’s annual gas output has been on a tailspin, dropping from 1.479 tcf in 2012, to 0.988 tcf in 2022 in large part due to declining gas reserves in mature gas fields, overshadowing discoveries in neighboring countries and unappealing fiscal terms.
Meanwhile, Bolivia, a key regional exporter, has seen natural gas production fall from a peak of 2.1 billion ft3/d in 2014 to 1.3 billion ft3/d in 2023, as the country’s reserves become more difficult and expensive to extract at commercially viable levels. The situation has become so bad that Bolivia has failed to meet volume requirements under export contracts.
Brazil remains one of the largest LNG importers in the region despite having more regasification capacity than any other country in the region. Indeed, Brazil is the sixth largest importer of U.S. LNG globally. Whereas Brazil has traditionally relied heavily on hydropower, changing weather patterns have forced the country to rebalance its energy mix with gas-generated power meeting shortfalls in its hydropower production. Brazil is set to launch a power auction in the current year, with expectations that ‘base’ electricity supply will continue to transition from hydropower to thermal gas plants.
Overall, Latin America and the Caribbean remain a net gas importer, thanks to declining production from mature fields, inhospitable terrain, and a lack of regional gas interconnections. LNG Industry now estimates that without additional development, the region’s gas imports will potentially soar to 12 billion ft3/d from current levels of 5.2 billion ft3/d by 2035. LatAm governments are currently having to strike a fine balance between supporting domestic industry and regional gas demand as power generators increasingly turn to gas as the hydropower sector faces unpredictable weather patterns.
The Vaca Muerta/Suriname Promise
Thankfully, all is not lost as Latin America continues to pursue energy independence. Under libertarian president Javier Milei, Argentina could soon become a regional and even global energy and gas powerhouse as Milei moves to privatize 41 state-owned companies, including national oil firm YPF SA, nuclear power company Nucleoeléctrica Argentina and energy infrastructure player Energía Argentina. Milei also seeks to decouple crude exports and leave local fuel prices at the mercy of market forces, undoing decade-old rules that have come under increasing criticism for holding back the country’s vast shale patch known as Vaca Muerta.
“Energy prices will couple with international values. The most radical change is eliminating the requirement to satisfy the needs of the local market — it’s an historic rupture with a century of Argentine tradition,” Juan Jose Carbajales, energy consultant and former oil and gas undersecretary, wrote in a report.
Milei’s energy reforms are viewed as a big win for YPF SA as well as dozens of Vaca Muerta oil and gas companies such as Chevron Corp. (NYSE:CVX), Shell and Vista Energy (NYSE:VIST) whose shale investments have been curtailed by low oil prices and protectionist policies that primarily favor national energy companies. Located in the oil-rich Neuquén province, Vaca Muerta is a massive shale play estimated to hold 16 billion barrels of oil and 308 trillion cubic feet of natural gas in recoverable hydrocarbon resources, making it the second-largest shale gas deposit in the world. Indeed, Vaca Muerta is similar to the prolific U.S. Eagle Ford shale but on steroids because its dry gas window has proven to be commercially viable.
Argentina’s existing and planned gas pipeline transportation networks will allow it to export gas locally to key gas importers such as Brazil and Chile, effectively reversing historic
gas flows. The development of Vaca Muerta presents an opportunity for Argentina to not only meet pre-existing local demand and potentially replace Bolivia as the main regional exporter but also become a key international player in LNG exports. Two years ago, YPF and Petronas reached an MOU to build a floating LNG processing plant in Argentina by 2027. The initial LNG plant will export up to 2 million tpy with a potential second phase increasing export capacity to 9 million tpy.
Additionally, major discoveries offshore of Suriname and Guyana have the potential to further transform the LatAm LNG landscape. Suriname is currently progressing with the development of a 4-million tpy LNG project, due for completion in 2025. However, international oil majors led by ExxonMobil are currently focussing on oil rather than gas.
