Global Insight Perspective | |
Significance | Argentina has become the first country in South America to import LNG. |
Implications | Gas supplies will remain tight and there is still a strong possibility of some supply disruptions to the transport sector or to industrial clients with interruptible contracts; nonetheless the arrival of LNG means that the situation will not be as bad as it might have been. |
Outlook | LNG may reduce supply risks in Argentina in the short term, but the financial costs will be high and the challenge of increasing the country's energy security over the long term remains. |
Excelerate Energy LLC has announced the delivery of the first LNG cargo to Bahía Blanca in Argentina, according to an Upstream report. The company said that the GasPort facility will allow the delivery of up to 11.2 mmcm/d of gas. The hiring of the Excelerate vessel with on-board regasification capability permits the delivery of gas direct to the pipeline system without the need to construct an LNG import terminal, allowing Argentina to become the first LNG importer in South America in a relatively short period of time. The vessel itself arrived on 30 May.
The project has been developed by the state energy company Enarsa and Repsol's Argentine unit YPF in record time, but a lot of the details remain vague. According to a report in La Nación on 1 June, it is not known how much the hire of the regasification vessel and its three cargoes will cost or who will pay—the government or large consumers. According to the report, government sources have indicated that the gas itself will cost around US$14 per million British thermal units (Btu). This is in line with international prices, but double the price that Argentina currently pays for gas imported from Bolivia and exaggeratedly high when compared with the price paid to local producers of around US$1.5 per million Btu.
Outlook and Implications
Argentina's temporary suspension of gas exports to Chile last month was a reminder of the vulnerability of domestic gas and power supplies and the risks of renewed shortages during the Southern Hemisphere winter (see Argentina: 29 May 2008: Argentina Suspends Gas Exports to Chile). On that occasion, the combination of an oil workers’ strike that had resulted in a production shortfall of 10 mmcm/d of gas and higher demand as a result of the arrival of a cold front was enough to cause a 20-mmcm/d deficit that provoked gas-supply shortages in Argentina and prevented gas sales to Chile.
The strike has since been lifted and the arrival of new gas supplies via the Bahía Blanca port will provide additional supplies for the winter months. The combination of LNG imports, fuel oil supplies from Venezuela, power imports from Brazil, and further export restrictions for industrial clients in Chile should be enough to prevent this winter being significantly worse than last, but the supply situation will remain tight and a number of uncertainties remain. The biggest uncertainties are the weather and the volume of Bolivian piped gas imports. If temperatures are lower than average then this could push up demand for natural gas and put additional pressure on supplies. The forecasts point to a milder winter than last year; however, there could be brief periods of a few days of intense cold as occurred in late May. Meanwhile, recent press reports indicate that Bolivia is continuing to struggle to meet its export obligations with Argentina. Under its current contract, Argentina is entitled to receive up to 7.7 million cm/d of gas, but at present import volumes are reportedly averaging just 1.8 mmcm/d and the expectation that demand from the domestic market in Bolivia will increase over the next two months means that there is unlikely to be any additional gas available for export to Argentina.
Even if LNG imports avert disaster this winter, this is not a long-term solution to Argentina's gas woes. The wide differential between prices charged to local consumers and LNG imports means that this option is unfeasible on a large scale. It also seems crazy to be paying so much for LNG when a more stable regulatory and pricing framework could encourage increased natural gas exploration in Argentina, which could then be produced at a lower cost and be a more reliable source of gas than LNG at a time of increasing global competition for this fuel.