Boost in hydro, fall in power demand prompts Brazil LNG re-exports
A Brazilian Ministry of Mines and Energy decision to authorize the re-export of LNG was prompted by a growing supply of hydropower and an overall reduction in electricity demand, a Brazil-based power market analyst said Monday.
The ministry August 20 authorized state-led Petrobras to re-export volumes up to 6.6 million cu m of gas, equivalent to about 10,840 cu m of LNG.
“Reservoir inflows in July were 50% above the historical average for the month,” said the analyst, who asked not to be identified. “As a result the MME has cut back on dispatch of the most expensive thermal plants, specifically those running on diesel and fuel oil.”
Despite severe drought conditions in Brazil, a strict water-rationing policy has restored reservoir levels in Brazil’s critical Southeast-Midwest region, where 70% of generation capacity is installed, to an average 37.4% in July, according to data from the National Electric System Operator. By comparison, reservoir levels during July 2014 averaged just 34.4%.
A recent slowdown in Brazil’s economic activity has also prompted a reduction in electricity demand.
“Most of the recent decline has come from a reduction in residential electricity use,” the analyst explained. “Most of the slowdown in industrial demand has already occurred.”
During the first trimester of 2015, Brazil’s GDP contracted by 0.9%, data from the Brazilian Institute of Geography and Statistics shows.
“The MME is laying the ground work for a reduction in gas demand that seem imminent,” the analyst said. “All of the gas-fired thermal plants are still running at 100% dispatch, but that could change.”
The recent authorization issued by the MME allows LNG volumes to be reloaded onto ocean-going vessels and resold into the spot market from any of Brazil’s three regasification terminals in Rio de Janeiro, Bahia or Ceara.
The authorization requires Petrobras to meet its contractual obligations to supply gas to the domestic market and may be revoked by the Ministry if there is a perceived risk of supply shortage.
“The MME has authorized LNG exports in the past. They did it back in 2010,” the analyst said. “Typically, it’s done in response to a reduction in demand for electricity, and natural gas in particular.”
The authorization became effective on August 19 and will remain in force through July 31, 2017.