Highlights
- Brazil, Mexico and Argentina are expected to import less LNG in 2016 compared with 2015
- Low gas prices will support gas-for-power demand in the United States and Canada this year
- Bolivia is expected to extend gas pipeline supply contracts with Brazil and Argentina beyond 2019
- A tightening of monetary policy by the US Fed would deter investment in Latin America
Economic overview
The United States Federal Reserve raised its benchmark interest rate in December 2015 – its first increase since 2006 – with further rises anticipated in 2016.
The Federal Open Market Committee (FOMC) has increased interest rates by 25 basis points, bringing Federal Fund rates to 0.25-0.50%, from 0-0.25%. The FOMC has eight meetings scheduled in 2016 and analysts expect four rate hikes this year. This tightening of monetary policy has bolstered the US dollar and reflects the Fed’s belief that the US economy is strengthening. The US dollar index, which reflects the strength of the dollar against other major global currencies, has averaged 98.9 so far in January, an increase of 6.1% on an annual basis.
Quarterly and annual year-on-year GDP growth rates
| Q1 2015 | Q2 2015 | Q3 2015 | 2016 | 2017 | 2018 | |
| US | 2.9% | 2.7% | 2.1% | *2.8% | *2.8% | *2.7% |
| Canada | 2.1% | 1.1% | 1.2% | *1.7% | *2.4% | *2.3% |
| Mexico | 2.5% | 2.3% | 2.6% | *2.8% | *3.1% | *3.2% |
| Brazil | -2.0% | -3.0% | -4.5% | *-1.0% | *2.3% | *2.4% |
| Argentina | 2.1% | 2.3% | *-0.7% | *-0.7% | *0.0% | *0.1% |
Latin American gas and LNG importers will end up paying more as the dollar strengthens against local currencies, and several have already reacted to the Fed’s move. Brazil and Colombia had embarked on monetary tightening measures to control inflation even before the rate increase. Peru increased its interest rates just days before the Fed, while Mexico and Chile upped theirs within 24 hours of the US hike.
The strong dollar index is weighing on oil prices, constraining the revenues of regional oil exporters such as Colombia and Venezuela. The WTI crude front-month futures price dipped below $30 per barrel in January and has averaged $31.5/bbl for the month so far – a decline of almost 33% on an annual basis. This will harm upstream investment in Colombia and Venezuela.