Highlights
- Gas demand growth in the Americas will be limited by mild weather and weakening macroeconomics
- The US and Brazil are driving overall gas production in the region
- Weak LNG demand from Brazil and Mexico will weigh on the region's LNG imports this year
- Henry Hub futures will have limited upside if forecasts for a mild winter in North America are accurate
Economic overview
The economic picture in Latin America’s key gas consumers and producers continues to deteriorate, limiting demand for the fuel and deterring upstream investment.
Brazil is officially in recession after its GDP shrank by 1.9% in Q2 2015 on a quarterly basis – its second consecutive quarterly contraction. The country’s GDP also fell by 2.6% on an annual basis – its fifth consecutive contraction year on year.
Quarterly and annual year-on-year GDP growth rates
| Q4 2014 | Q1 2015 | Q2 2015 | 2015 | 2016 | 2017 | |
| US | 2.5% | 2.9% | 2.7% | *3.1% | *3.1% | *2.7% |
| Canada | 2.5% | 2.0% | 1.0% | *2.2% | *2.0% | *2.0% |
| Mexico | 2.6% | 2.6% | 2.2% | *3.0% | *3.3% | *3.5% |
| Brazil | -0.2% | -1.6% | -2.6% | *-1.0% | *1.0% | *2.3% |
| Argentina | 0.4% | 1.1% | *-0.3% | *-0.3% | *0.1% | *0.3% |
The Central Bank of Chile is considering increasing the country’s benchmark interest rate to tackle high inflation. The weakening of the Chilean peso against the United States dollar is making imported LNG expensive for the country. The dollar strengthened by 13.7% against the peso on an annual basis in the first nine months of 2015.
A strong dollar is a concern for all Latin American energy importers. The US Federal Open Market Committee is expected to start increasing the country’s benchmark interest rate in its 17 September meeting, which will further support the dollar.
In North America, persistent low global oil prices have led to a recession in Canada. The country’s GDP shrank by 0.1% in Q2 2015 on a quarterly basis – its second consecutive quarterly contraction. Low oil and gas prices are already hampering domestic gas production in Canada, and the situation is expected to worsen as the economy weakens further.