(WoodMac, 26.Jan.2022) — Last year proved how dynamic the gas and power markets in the Southern Cone are. And many uncertainties will be carried to 2022, especially regarding the extent of the impact from the region’s historic drought.
Wood Mackenzie, a Verisk business (Nasdaq: VRSK) expects 2022 will mostly be shaped by three major events.
Tarcisio Tavares, an analyst with Wood Mackenzie’s Latin America Gas & LNG research team, said: “Argentina’s new pipeline between Neuquen and Buenos Aires will be a milestone for its gas market, helping the country keep growing domestic production and reduce import dependency.
“In Brazil, improving hydro reservoir levels will be key to softening the gas balance and reducing dependency on expensive liquefied natural gas (LNG), bringing down gas and electricity prices during the year. Meanwhile, generators in Chile will have the opportunity to win 15-year power purchase agreements (PPAs) in two regulated auctions totalling 7.5 terawatt hours (TWh) a year.”
Argentina’s Gas Scheme succeeded in reactivating investment in the upstream and now the country’s main barrier to sustaining production growth is transport capacity. The Centro-Oeste pipeline is already saturated and the two Neuba pipelines will reach 100% utilisation from May to September.
To ease the transport bottleneck, the government plans to invest in the pipeline system. The initial plan commits US$583 million from the 2021 national budget and US$476 million from the 2022 budget plus US$520 million from IEASA, bringing total investment for the first phase of the plan to US$1.58 billion.
Tavares said: “However, the government is still discussing the plan, adding uncertainty to scheduling that will remain until final investment decisions are made. Wood Mackenzie expects important steps will be taken towards securing these investments this year.
“The government’s focus is on the Nestor Kirchner pipeline tender, with the rules disclosure expected to early 2022, while the execution expected to the end of the first half. Defining the tender’s winner and construction starting in 2022 will send clearer signals to the market. The same applies to the other projects, that will be carried out by TGN and TGS.”
Looking to Bolivia, the sixth addendum will define YPFB’s aggressiveness towards Brazilian market. YPFB and IEASA committed to signing the sixth addendum by 30 June 2021. It has not yet been agreed.
In the fifth addendum, signed at the end of 2020, despite the daily contracted quantity remaining at 20.4 Mcmd, delivered volumes stayed below 17 Mcmd throughout the year, averaging 13.1 Mcmd.
Moreover, due to Margarita well issues, Bolivia sent less than the 9 Mcmd daily base quantity (CDBA) in October and November and less than the take-or-pay volume in September.
Tavares said Argentina will try to keep higher volumes of Bolivian gas in the winter season to reduce dependency on LNG imports at high prices (LNG spot price plus regas tariff in Argentina will average US$17/mmbtu during winter 2022) and keep it above the 8 Mcmd technical limitation of the TGN pipeline throughout the year.
He added that Bolivia will want to negotiate better price conditions, having in mind the opportunity to sign an interruptible agreement with Petrobras or with other Brazilian portfolio players that could compensate the lack of Bolivian gas from other sources during winter. Brazil will import an average of 27.2 Mcmd of LNG in 2022 at an average price of US$22.3/mmbtu and YPFB could offer better prices.
“The new addendum will have a large impact on the Southern Cone gas markets in 2022. It will not only determine Argentinian LNG imports during winter, it will define how aggressive YPFB can be when negotiating with Brazilian players,” he said.
“This addendum is the greatest opportunity for Bolivia to increase revenues from gas exports after 2022 and support YPFB’s strategy to increase exploration capex.”
In Brazil, after a tight period for power generation when SECO hydro reservoir levels reached 16.7% of their capacity in September and gas-fired plants were fully dispatched by the operator, above-average rain levels during the current wet season have finally given the Brazilian power system a break.
However, due to lack of definition on whether hydro reservoirs will return to normal levels at the end of the current wet season, gas demand and the supply mix are uncertain for 2022.
Wood Mackenzie expects that rainfall levels will remain near the long-term average during the wet season. As such, natural gas demand for the power segment will reach an average of 48.5 Mcmd in the year, and total gas demand will average 111.0 Mcmd.
The Chilean electricity market is on a clear path to decarbonisation. The country’s four main utilities – AES Andes, Colbún, Enel and Engie – have already committed to decommissioning half of the country’s coal fleet by 2025.
Tavares said: “These companies are taking the opportunity to replace old coal-backed PPAs for new ones with their renewable projects. We expect some project acceleration announcements in 2022. These four companies also announced renewables-plus-storage projects; AES will be commissioning around 200 MW of battery storage in the Andes Solar project in 2022.”
Chile will hold two regulated auctions in 2022, in which 15-year PPAs will be awarded: in H1, a volume of 5 TWh a year for supply starting in 2027, and in H2, a volume of 2.5 TWh a year for supply starting in 2028.
The country usually holds one regulated auction a year, but the 2020 auction was postponed to 2021 and two will be held in 2022 to fill the gap. In the 2021 auction, regulated contracts with prices as low as US$13/MWh were awarded, and the average bid was around US$25/MWh. With such a competitive environment in the market, low prices are also expected for the 2022 auctions.
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