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Latin American supply and demand trends diverge

The region’s appetite for LNG has been hit by the Covid-19 pandemic, but exports have proved more robust

The regional supply and demand stories have been quite different so far in Latin America in 2020. Demand has been shellacked, but LNG producers have had a better time.

As in most of the rest of the world, broad quarantine measures put a dampener on gas requirements for power production, while manufacturing activity, especially through Q2, fell into deep contraction. 

Even now, as an economic recovery takes hold in varying degrees across the region, LNG demand remains materially weak, especially against 2019.

The region’s LNG imports finished August at just 1.16mn t, marking a decline of 0.73mn t against year-earlier levels and slightly further below the five-year seasonal average of 1.94mn t. Arrivals through June, July and August are typically the strongest of the year—reaching 5.55mn t across the period in 2019. This year saw just 3.45mn t arrive over the three months.


Much of this regional import weakness through the summer months was driven by a lack of Mexican purchasing. In August alone, arrivals were down by 0.48mn t against year-earlier levels, accounting for more than 65pc of the total year-on-year LNG import decline for the region.

0.48mn t – Fall in Mexican LNG imports in August

This is not a surprising development. Mexico has struggled to cope with the negative economic effects arising from Covid-19. While the peso has managed a partial recovery against the dollar in recent months, the currency is still lower by some 18pc year-to-date, buoying import cost inflation. Manufacturing PMI has rebounded back into expansionary territory, but only slightly after bottoming out at 39 in May. GDP, much like in the rest of the world, contracted sharply in Q2, down by 18pc year-on-year.

The Mexican demand story is bad news for US exporters, who rely on Mexican purchasers as a key driver of US Gulf Coast loadings. In May-July last year, the US shipped some 1.3mn t to Mexico. In 2020, exports over the three-month period fell to nil—an unsurprising outcome given the overall weakness in overall Mexican arrivals, which finished down by more than 1mn t against year-earlier levels. This dynamic was key in driving US LNG export volumes to their weakest levels in half-a-decade through late Q2 and early Q3.


There are only two major LNG exporters in Latin America, of which one—Trinidad and Tobago—dominates. Trinidad loaded 12.95mn t (1.08mn t/month) in 2019, accounting for 75pc of regional volumes.

Despite coronavirus-related slowdowns throughout much of the world, Trinidad has seen little slowdown in exports. Departures for 2020 so far have averaged a comparable 1mn t/month.

Such resilience in flows out of Trinidad is largely a result of two factors. First, some 80pc of all the LNG it exports is on a long-term contract basis. While contractual obligations can be broken, the process of doing so is usually harder than cutting spot volumes from the portfolio.

Trinidad relies most heavily on Spanish demand, a dynamic that appears problematic at first given how hard that country was hit by Covid-19. Nonetheless, LNG departures for Spain have held at 0.17mn t/month so far through 2020, in-line against year-earlier levels. More than 95pc of this was delivered to fulfil long-term contracts, adding ‘stickiness’ to the trade flow.

Compare this dynamic to Puerto Rico, the second-largest importer of Trinidadian LNG. Exports to the Caribbean island have declined by nearly 0.06mn t/month year-on-year in 2020, marking a 56pc decline against year-earlier levels. From the start of last year, Trinidad sold nearly all its LNG volumes into Puerto Rico on a spot contract basis. The same stickiness that has supported Spanish trade flows does not exist in Puerto Rico’s case.

As an economic recovery takes hold in varying degrees across the region, LNG demand remains materially weak

Trinidad also enjoys a diverse base of potential purchasers, a second plank of its export resilience so far this year. In 2019, the state shipped at least 3pc of its total loadings to 13 different countries.

This has helped provide optionality in 2020 as Covid-19 outbreaks have risen and fallen at different times in different regions. Trinidad’s split is slightly better even than the US and Qatar (both 11) and a significant improvement over Australia, which ships 92pc of its LNG volumes to just four countries.


Peru, the other material regional LNG exporter, has also enjoyed a degree of stability in 2020. Departures from the country have reached 2.61mn t (0.32mn t/month) so far this year year, in-line with last year.

Its exports have particularly targeted East Asia, taking advantage of a regional shift away from coal-powered generation—furthering a trend from 2019 as low spot prices and green initiatives incentivised LNG purchases. Peruvian LNG departing for East Asia is running at 0.3mn t/month, up slightly year-on-year. And while the absolute amount—0.04mn t/month— may seem small, that year-on-year gain represents more than 14pc of Peru’s total monthly exports.

Reid I’Anson is a senior commodity economist at Kpler

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