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In the second of a two-part interview, UK-based energy analyst Leigh Bolton tells BNamericas why Mexico's reliance on natural gas imports from the US is unlikely to be affected by Donald Trump's America first policy.
BNamericas: Given rising US natural gas production, is there a danger of a global LNG glut?
Bolton: I don't think so. What we have in the market is a capacity to produce. It's out of sync with what we thought would be the growth of the import market. But the import market is going to catch up soon. That could happen in the early or mid-2020s, according to industry estimates. In the mid-term we're still going to see few end-users. But you still have to sign 20-year agreements because that's the way operators of export plants pay off their debts to the banks. So portfolio off-takers will continue buying from the US and then selling it in small chunks on the spot market.
BNamericas: What do you think will be the impact of Donald Trump's "America first" policy on US LNG and pipeline exports to Mexico? Will Mexico need to seek new suppliers?
Bolton: This will depend on electricity demand. Mexico has built import terminals where it needs gas. The whole point of Mexico importing US LNG was that it was perceived to be cheaper. If president Trump chooses to cut off pipeline exports to Mexico or impose new tariff barriers, Mexico can import LNG from elsewhere because the existing terminals are only working at 40% or 50% capacity. They could effectively double their imports. Any portfolio buyer would be lining up to sell LNG to Mexico.
The interesting thing might be that portfolio buyers will purchase LNG from the US and then re-sell it to Mexico. The only way to stop that would be to make a contractual change that stipulates where end-buyers of US LNG can come from. I don't think that president Trump can have a major effect on the LNG business. The US can talk about increasing tariffs and cutting off pipeline supplies but that would reduce gas production levels and lead to workers being laid off, which is exactly what he doesn't want.
BNamericas: Which Latin American countries do you envisage will drive LNG demand growth in the next five years and why?
Bolton: Mexico, if US shale gas is shut off. But the thing to remember is that no Latin American country buys big volumes of LNG from a global point of view. Most of the supply for Brazil, Argentina and Chile is contracted via tenders that happen once or twice a year. Brazil is probably the only significant importer for Latin America and unlike before, it is now importing 12 months a year. It's possible that it could increase imports further.
BNamericas: Apart from Peru and Trinidad & Tobago, do you see any other Latin American countries producing and exporting LNG on a major scale in the coming years?
Bolton: Trinidad and Tobago's capacity to export LNG has been decreasing which means there could be a void that needs to be filled in the near future. Venezuela has been talking about exporting LNG for years but every time a company shows interest, the rules change and then nothing happens. A floating export terminal for Venezuela is a real possibility but it would be quite small – maybe 2Mt a year, which is about half of one of the processing lines in Trinidad & Tobago. It would be more a statement of intent than anything sensible or practical.
About Leigh Bolton
Leigh Bolton is an independent LNG and natural gas consultant and founded Holmwood Consulting in late 2005. He regularly delivers industry training courses on LNG and FLNG technical and commercial aspects and provides numerous in-company workshops around the world. An engineer by training, Bolton is a strategist, consultant and trainer by choice. He has an engineering BSc (honors) and also holds an MBA (distinctions).
About the company
Holmwood Consulting Limited is a training and business advisory company focused on providing strategic services to the energy industry, primarily in the area of LNG and natural gas, but also serving selected areas of the electricity, oil and environment sectors