Highlights

  • Improving gas storage levels in the US will be sufficient to meet an increase in gas-for-power demand during summer
  • Moderate weather-related demand will weigh on LNG imports by Latin America
  • Low oil prices are negatively impacting gas production in North America and Latin America
  • A strengthening US dollar index may dampen upstream investment in Latin America

Economic overview

The improving economy in the United States is reflected in the strength of the US dollar index, which is adversely impacting the trade balance of Latin American LNG importers.

The US saw its GDP grow by 2.4% year on year in Q4 2014, matching the average growth rate for the year as a whole. The country’s unemployment rate stood at 5.5% in March – its lowest level since May 2008. Consequently, it is widely expected the US Federal Reserve will start to raise its key benchmark interest rate towards the middle of the year. This will also keep up the strength of the US dollar index, which reflects the value of the dollar against a basket of major global currencies. The index is at its highest monthly average since April 2003.

Quarterly and annual year-on-year GDP growth rates

  Q3 2014 Q4 2014 Q1 2015 2015 2016 2017
US 2.7% 2.4% *3.1% *3.1% *3.1% *2.7%
Canada 2.8% 2.6% *2.2% *2.2% *2.0% *2.0%
Mexico 2.2.% 2.6% *3.0% *3.0% *3.3% *3.5%
Brazil -0.6% -0.2% *-1.0% *-1.0% *1.0% *2.3%
Argentina 0.0% 0.4% *-0.3% *-0.3% *0.1% *0.3%
Source: Regional government sources. *IMF WEO projections

The situation in the US is in stark contrast to Latin America, where the prospects for some of the region’s major economies are discouraging. Brazil’s economy contracted for the third consecutive quarter in Q4 2014, by 0.2% on an annual basis. Argentina’s GDP grew by 0.2% in Q4 2014 year on year, lower than its 0.5% average growth for the whole year.

Brazil and Argentina are some of Latin America’s key LNG importers, and the strengthening US dollar index will further harm their current account balances.

The acquisition of BG Group by Shell will streamline technological efficiency – both upstream and downstream - in Latin America. For instance, the new company will have stakes in existing and upcoming LNG projects in Peru, Trinidad & Tobago, the US and Canada.