Highlights
- Brazil's industrial gas demand is falling because of the country's weakening economy
- Subsidy reforms in Argentina will weigh on the country's gas-for-power demand
- Declining marketed gas production in Colombia is causing supply tightness
- Growth in gas production in the US and Canada is being moderated by low oil prices
Economic overview
The economies of Latin American countries continue to suffer as a result of persistent low oil prices and the strong US dollar – and there is no respite in the near term.
The Brazilian economy continues to weaken, partly affected by financial woes facing state oil company Petrobras. Brazil’s GDP contracted by 4.5% on an annual basis in Q3 2015 – its sixth consecutive quarter of decline. Brazil’s budget deficit increased to 10.3% of its GDP in 2015 – its highest level on record. This will reduce the government’s spending flexibility, including on upstream oil and gas.
Countries such as Colombia and Venezuela, which depend on oil-export revenue, are also feeling the pain of low oil prices and weakening economies. In January, the Colombian central bank hiked its benchmark interest rate by 25 basis points, to 6% – its fifth consecutive monthly hike. However, monetary tightening measures will hurt Colombia’s GDP growth prospects – in a similar way to how they are affecting Brazil.
Quarterly and annual year-on-year GDP growth rates
| Q2 2015 | Q3 2015 | Q4 2015 | 2016 | 2017 | 2018 | |
| US | 2.7% | 2.1% | 1.8% | *2.8% | *2.8% | *2.7% |
| Canada | 1.1% | 1.2% | *1.0% | *1.7% | *2.4% | *2.3% |
| Mexico | 2.3% | 2.6% | 2.5% | *2.8% | *3.1% | *3.2% |
| Brazil | -3.0% | -4.5% | *-3.0% | *-1.0% | *2.3% | *2.4% |
| Argentina | 2.3% | *0.4% | *0.4% | *-0.7% | *0.0% | *0.1% |
Meanwhile, the Venezuelan government announced the country’s GDP contracted by 5% in 2015, with export revenues falling by 70% because of low oil prices. The economy shrank by 3.9% in 2014, and the country’s central bank expects further GDP contraction in 2016.
Latin America’s weakening economies will put pressure on the sovereign ratings of several countries. Fitch Ratings has already said the credit ratings of countries in the region may be downgraded this year, further deterring investment.
The US dollar is expected to gain strength against local currencies in Latin America this year if the US Federal Reserve continues to increase interest rates. This will also weaken Latin American currencies against the dollar, making energy imports more expensive for them. The US dollar index, which reflects the strength of the dollar against other major global currencies, has risen by 3.1% on an annual basis so far in February.