Grand expectations must reconcile with reality, according to an analyst, especially when new supply from North America interacts with uncertain worldwide demand. South America might provide a home for some of the new capacity, even if nations are more inclined to pipeline natural gas imports and renewables.

A whopping 47 billion cubic feet per day (Bcf/d) of liquefaction capacity has been proposed in the U.S., an amount that dwarfs last year’s total worldwide trade of only 35 Bcf/d. Javier Diaz, a manager of energy analysis and consulting at Bentek Energy, expects about a quarter of the proposed U.S. capacity to make it to construction and eventually liquefaction. There simply isn’t enough room in the world market to accommodate them all.

By his appraisal, the more realistic estimate includes Cove Point on the U.S. East Coast; the first five trains of Sabine Pass LNG and trains 1 through 3 of Cameron LNG, both in Louisiana; the first three trains of Freeport LNG in Texas; and finally, the first two trains of Corpus Christi LNG. Of the contracts from those projects so far, 4.1 Bcf/d will be dealt to portfolio players, 2.4 Bcf/d will find end-users in Japan and 1.6 Bcf/d will be sold to Spanish companies.

The oil price drop has also affected future U.S. proposals. Before the oil-price drop of this and last year, the average savings for a Henry Hub-linked contract vs. a traditional oil-linked contract to Asian buyers was about $2.24 to $2.74 per million Btu. Now, however, the oil price drop has largely wiped out that price advantage. Moreover, Bentek expects U.S. projects will be competitive with oil-linked projects at a $78 oil price, but when it incorporates the sunk costs on terminals that are currently under construction, oil needs to only be at $54 a barrel to be competitive in 2020.

Canada, like the U.S., is also finding itself adjusting its expectations. Close to 20 projects have been proposed for some time, but it is only recently that one has decided to make the plunge—sort of. Canada was originally well positioned to take advantage of Asian LNG price arbitrage, banking on its available cheaper gas and lower transportation costs. Yet, the opportunity window for British Columbia projects is closing, according to Diaz. The projects there didn’t react quickly enough to what Asian buyers were looking for: destination flexibility and diversified price structures with a break from oil links. Moreover, the high infrastructure costs, including monstrous pipelines, added to an already swelling potential bill. In the medium term, this lack of alacrity let Australian projects come in and swoop up the market.

“The room of opportunity is really closing, at least until probably the second half of the next decade,” Diaz said about Canadian projects.

Petronas’ Pacific NorthWest LNG, which delayed a final investment decision (FID) late last year, has now taken an FID conditional upon regulatory and legislative matters. It is unclear at the moment if other projects will follow and fulfill what British Columbia Premier Christy Clark has promised will be a booming industry for her province.

Potential Imports

Mexican imports look to be outpaced by growing pipeline supplies. The Los Ramones Phase II North Pipeline looks to be completed by the end of the year, and the Los Ramones Phase II South is expected to be finished in June next year, according to Bentek. This pipeline will in part push Texan exports of natural gas to Mexico by 1 Bcf/d next year, and total U.S. exports to Mexico will grow to 4.4 Bcf/d by 2020. This increased reliance on pipeline gas will naturally displace some LNG imports.

As a whole, South America has increased its reliance on natural gas, especially LNG imports. Mainly supplied by a liquefaction facility in Trinidad and Tobago, average South American imports have grown 136% since 2010. Argentina has more than tripled its LNG demand, while Brazil more than doubled and Chile grew at a more modest 30%. The future growth of LNG imports in these countries has potential, but it can stall as countries mull other options.

In Brazil, a multiyear drought of epic proportions has persuaded the country to shift more toward thermal electric generation from fossil fuels and away from its traditional mainstay, hydropower. While the government hopes to continue to use water and wind as its main electricity generators, it has carved out 13% of its 2023 power generation capacity plan for natural gas. As it increases its overall capacity by 7.1 gigawatts (GW) per year, that means that over the next several years Brazil will install 8.3 GW of new natural gas capacity. Of course, it would love to still rely on pipeline imports from Bolivia, as they are the cheaper option; Brazil currently has no long-term LNG import contracts and has been ravaged by the spot market. Further developments in offshore, pre-salt gas present an option for supply as well, but developing it is expensive.

LNG continues to grow in Argentina as well, as the South American nation has had to increase its imports amid declining domestic production. Pipeline imports from Bolivia also appear to be the most attractive option here, too, as they are cheaper.

Chile has seen more modest growth from its two import terminals, and it is currently considering whether it needs a third. It generated 23% of its power from natural gas in 2013, and it hopes to reduce that share to 19% by 2025.

On the whole, Diaz said there is currently about 7.78 million tonnes of uncontracted South American LNG demand to be met in 2024 and that this presents an opportunity to exporters.

More uncertain Central American and Caribbean imports will be met by challenges including small volumes, lack of financing and high financial risk. Potentially, these nations could overcome these challenges through demand aggregation and container solutions.

On the whole, South and Central America have the potential to soak up some volumes from North America, but certainly not enough to justify building all of the current proposals.