Global Insight Perspective | |
Significance | The import of LNG will allow Brazil to reduce its dependence on piped gas imports from neighbouring Bolivia. |
Implications | Brazil's conversion into an LNG importer will also give it more of the flexibility it needs to meet demand for gas from an electricity sector that is predominantly hydroelectric. |
Outlook | Brazil's domestic gas production is set to continue rising, but the country will continue to import gas from Bolivia until its contract expires in 2019 whilst the volume of LNG imports from one year to the next could vary depending on the level of rainfall. |
President Inaugurates LNG Terminal
President Luiz Inácio Lula da Silva yesterday inaugurated the country's first LNG regasification terminal. The vessel, located in the Port of Pecém in the north-eastern state of Ceará, has a seven million cubic metre per day regasification capacity, a volume equivalent to around half of the natural gas consumption by the electricity sector. It will also increase natural gas supplies in the country, currently at 60 mmcm/d, by 11%. The first LNG load of gas has come from Trinidad and Tobago, but Petrobras has signed LNG supply agreements with several companies including Shell and BG. The main destination of gas from the terminal will be thermal power plants. A second plant located in the Guanabara Bay in the state of Rio de Janeiro is due to be inaugurated later in the year.
According to local press reports, President Lula said that it would take another 20 days for the new terminal to be fully functional. Nonetheless the inauguration is a significant event as it marks Brazil's entry into the global LNG market as well as increasing security of supplies for electricity generation in a country that is heavily dependent on hydroelectricity. In a statement, the state oil company Petrobras also highlighted the innovative nature of the project saying that its regasification terminals are the first in the world to use vessels that can store LNG and regasify the product on board. The chartering of a vessel also explains how Petrobras has been able to complete the project in just eight months, compared to a lead time of at least four years for the construction of an onshore LNG import terminal.
Meanwhile the location of the Pecém terminal is of particular significance. Thermal power generation is more important in the north-east of Brazil than in the south of the country but Bolivian gas does not reach this part of the country, and with several older gas fields in this region declining new gas supplies are needed for thermal power plants. The construction of a gas pipeline network linking the north-east and southern regions, and the LNG project will both help increase supplies.
Outlook and Implications
The inauguration of the Pecém terminal means that Brazil has become the second LNG importer in South America, after Argentina, which began importing LNG earlier this year and which has already received at least three cargoes (see Argentina: 10 June 2008: Argentina Receives First LNG Cargo). Chile is also set to become an LNG importer and Uruguay is considering a project despite plentiful gas reserves in Peru, Venezuela and Bolivia (see Latin America: 20 May 2008: Latin America Moves Ahead with LNG Projects ).
In the case of Brazil, rising demand for gas and concerns about the reliability of Bolivia as a gas supplier have been the main motivations for securing gas supplies from alternative suppliers. A drought at the beginning of this year, which resulted in the need for increased thermal power generation and revived concerns about the threat of rationing, have also provided added urgency. LNG will not substitute Bolivian gas, indeed Petrobras' finance director Almir Barbassa reaffirmed a few days ago that Brazil would continue to import gas from Bolivia until at least 2019, when the current contract runs out. Brazil is entitled to 30 million cubic metres per day of gas from Bolivia. However, the two LNG import terminals and increased domestic gas production will help ensure sufficient supplies to meet demand from the electricity sector. Brazil's conversion into an LNG importer will also give it more of the flexibility it needs to meet seasonal fluctuations in demand for gas from an electricity sector.