Highlights

  • Low weather-related gas demand and healthy production levels in the US have reduced demands on gas storage, pressuring Henry Hub prices in turn
  • The weather will support demand in Latin America, maintaining the region's dependence on gas and LNG imports
  • Low global oil prices will pressure gas production in several North and Latin American countries
  • Key LNG importers in Latin America are feeling the impact of strength in the US dollar index

Economic overview

The United States registered a seasonally adjusted GDP growth rate of 5% in Q3 2014 compared with the previous quarter, its highest level since Q3 2003.

An improving macroeconomic picture in the US is strengthening the dollar against local currencies in Latin America, which will make gas and LNG imports more expensive for key consumers in the region. A well-performing US economy will also increase pressure on the Federal Reserve to start hiking the benchmark interest rate from its current historic low. The central bank is expected to start lifting rates in H1 2015. This will further bolster the dollar index – which reflects the value of the dollar against a basket of major global currencies. The dollar index has averaged 92.0 so far in January, its highest level since October 2003.

Quarterly year-on-year GDP growth rates

  Q1 2014 Q2 2014 Q3 2014 2014 2015 2016
US 1.9% 2.6% 2.7% *2.2% *3.1% *3.0%
Canada 2.1% 2.5% 2.6% *2.3% *2.4% *2.4%
Mexico 1.9% 1.6% 2.2.% *2.4% *3.5% *3.8%
Brazil 1.9% -0.9% -0.2% *0.3% *1.4% *2.2%
Argentina 0.3% 0.0% -0.8% *-1.7% *-1.5% *-1.5%
*IMF WEO Projections. Source: regional government sources

Brazil registered its first annual trade deficit since 2000 last year, partly as a result of high gas and LNG imports. The country saw a trade deficit of $3.93 billion, which partly contributed towards the weakness of the Brazilian real against the dollar. The dollar has strengthened against the real by 12% so far in January 2015 compared with January 2014.

Argentine GDP growth contracted by 0.8% in Q3 2014 on an annual basis, reflecting the impact of the country’s debt default at the end of July. The weakening economy in Argentina, together with the strength in the dollar index, will also deter IOC interest in the country’s oil and gas sector.