This decline in chemicals output has been balanced by some production growth in other gasintensive subsectors, including non-metallic minerals (1%), food and beverages (0.8%) and petroleum products (0.8%) (Eurostat, 2019c). The highest growth in gas demand for industry has been observed in Spain, with a rate of 4% or almost 1 bcm (Enagás, 2019), increasing in all sectors (except textiles). In Turkey, the economic slowdown weighed on industrial gas demand, declining by 11% or 1.4 bcm (GAZBIR, 2018). This was mainly due to declining iron and steel production (down 1%) and output of non-metallic minerals (down 2.7%).

Natural gas demand for industry is therefore expected to stagnate in Europe, as energyintensive industry in the region struggles to be cost-competitive with other regions where energy prices are set to remain well below European price levels, including the United States and Russia.

Central and South America

Natural gas consumption in Central and South America is expected to grow at an average annual rate of 1.2% over the forecast period, adding 13 bcm to the 168 bcm of demand in 2018. Demand growth over the forecast period is led by the industrial sector, both in absolute and growth rate terms, with an annual growth rate of 1.7% adding an additional 5 bcm/y to overall demand, owing to better economic prospects (Figure 1.28).

Figure 1.28. Natural gas demand by country and by sector, Central and South America, 2004–24

Regional natural gas demand growth is expected to average 1.7% per year to 2024, mainly driven by industry.

At a country level, Argentina leads the increase in demand, representing over 70% of the growth in natural gas consumption over the forecast period, or almost 10 bcm/y, reaching 57 bcm/y by 2024. Brazil is expected to remain the second-largest consumer, with almost 35 bcm/y of natural gas demand by 2024.

Argentina

Argentina is the largest natural gas-consuming country in the region, representing around 32% of total consumption in 2018. Demand is highly seasonal, especially due to the residential and commercial sector (Figure 1.29).

Figure 1.29. Natural gas consumption by sector, Argentina, 2017–18

Source: Gobierno Argentina (2019), “Exportaciones por sector de actividad, saldo comercial y rangos de exportación de la empresa exportadora”, https://datos.gob.ar/dataset/sspm-produccion-consumo-gas-natural/archivo/sspm_364.3.

Argentina’s demand peaks during the southern hemisphere winter, when domestic production is not sufficient and the country needs to import natural gas.

Figure 1.30. Natural gas consumption by sector, Argentina, 2006–24

Industry drives Argentina’s natural gas demand growth to 2024, with total consumption growing at an average rate of 1.2% per year.

This forecast expects natural gas demand in Argentina to reach 57 bcm/y by 2024 (Figure 1.30). Consumption for power generation is set to keep increasing due to a switch from other fossil fuels, and oil products in particular. In the residential sector, growth is expected to come from new connections, as the government has a goal of 68% of households to be connected by 2025. Growth from industry is expected to come from the post-2019 economic recovery, as the IMF forecasts negative GDP growth of -1.2% in 2019 followed by 2.2% in 2021 and increasing up to 3.6% in 2024. In its energy scenarios to 2025, the Argentinian government expects growth to come mainly from the residential and commercial sector (with 2.2% growth), followed by industry (2%) and transport (2%). Commercial demand is expected to grow at a slower pace of 1.9% (Ministerio de Energía y Minería, 2016).

Box 1.4 Argentina’s gas market reform

Before President Mauricio Macri took office in 2015, Argentina’s gas and power sector was tightly regulated by the federal government and prices were heavily subsidised.

Macri’s programme has included reducing government intervention and setting up an energy market where prices would be driven by competition. Reforms started in 2016 by increasing regulated gas prices for power distribution companies and CNG prices for vehicles, and reducing subsidies for end users. In 2017 the government introduced a price incentive for unconventional gas production, and in 2018 it agreed to gas exports to Chile without re-import commitments, albeit with interruptible contracts. Additionally, the government announced that thermal power plant users could start bidding for their natural gas supply, moving from the existing fixedcontract systems with Cammesa, the power system operator. In total, two auctions of gas for thermal power were held for interruptible volumes between the end of 2018 and early 2019. In February 2019 the country held two further auctions for firm gas purchase between suppliers and gas distribution companies for April 2019 to March 2020 (the first open auctions for contracted volumes in this category). It was a reverse auction, where the buyer places an order with the corresponding details, and the seller of natural gas with the lowest price wins the auction.

The Neuquén, Golfo San Jorge and Austral basins auction took place on 14 February 2019 and the Norwest basin auction on 15 February (El Economista, 2019). The auctions took place in the Mercado Elctrónico de Gas (MEGSA), with take-or-pay clauses for the distribution companies and deliver-or-pay clauses for the producers, both fixed at 70% of daily maximum capacity. The distribution companies will have 65 days to pay for the natural gas after delivery. This might be an issue in respect of working capital requirements as distribution companies receive payment from end users every two months, so they would need to finance the payment to producers, with the respective cost of capital. Distribution companies argued they would either pass through the additional financing cost to end users or not participate in the auction at all. On their side, producers argued they would also incur financing costs, which would be reflected in higher auction prices. The government decided to adopt an average of 65 days (neither the original 75 days, as before, nor the 30 days proposed during a public consultation). The distribution companies have to buy at least 50% of their annual volumes in the auction, and have the possibility to buy the other 50% through bilateral contracts with the oil companies (same system as before the auction) (El Cronista, 2019).

During the first auction, 14.3 million cubic metres (mcm) were awarded for the summer season and 35.7 mcm for the winter, with an average price of USD 4.67/MBtu. During the second auction, the price was USD 4.73/MBtu and volumes were 3.8 mcm and 9.4 mcm for the summer and winter season respectively (MEGSA, 2019a, b).

Results for auctions on 14 and 15 February, Argentina, 2019

Argentina plans monthly auctions for the offer of domestic gas and is due to launch a separate four-year auction for the offer of winter gas at prices indexed to imported LNG (Reuters, 2019).

Sources: El Economista (2019), “Se viene la subasta de gas del Gobierno”, www.eleconomista.com.ar/2019-02-se-viene-la- subasta-de-gas-del-gobierno/; El Cronista (2019), “Gas: Así será la subasta que definirá el precio a trasladar a tarifas”, www.cronista.com/economiapolitica/Gas-asi-sera-la-subasta-que-definira-el-precio-para-trasladar-a-tarifas-20190210-0006.html; MEGSA (2019a), “Resultados subasta”, www.megsa.com.ar/pdf/Resultados1502.pdf; MEGSA (2019b), “Resultados subasta”, www.megsa.com.ar/pdf/Resultados1402.pdf.

Brazil

Industry was the largest consumer of natural gas in Brazil until 2013, when power generation surpassed it due to the severe hydropower water shortages experienced between 2013 and 2015. During this period natural gas use for power generation peaked at almost 19 bcm/y (Figure 1.31).

Renewables other than hydro are expected to grow in the medium term as the Brazilian Ministry of Mines and Energy announced in February 2019 the award of construction licences for over 1.5 GW of green projects, awarded in September 2018. Among the 53 projects, 44 are for wind power generation, 7 are hydropower, 1 is biomass and 1 is a natural gas power project of 362.20 MW. The projects are due to start in 2024, with a power purchase agreement of 25 years for the gas-fired plant (Renewables Now, 2019). However, due to the historical dependence on hydro and the foreseen increase in intermittent renewable generation, Brazil is also building new thermal power generation to provide flexibility. A previous power auction in December 2017, the first to implement new rules designed to support the development of new gas-fired power generation, awarded licences for 2 large gas-fired power plants totalling around 2 140 MW.

In February 2019 a joint venture formed by Patria Investimientos, Shell and Mitsubishi Hitachi Power Systems Americas announced a project to build and operate a gas thermal power plant in Marlin Azul in Macaé (Rio de Janeiro), using associated pre-salt gas from Shell’s own production. The Marlim Azul power plant, with a capacity of 565 MW, is due to be operational by 2022 (MHPS, 2019)

The Sergipe LNG-to-power project – comprising a CCGT power plant with a total installed capacity of 1.5 GW, a 33-km transmission line, and an FSRU – will upon completion in January 2020 be the largest thermal power plant in Brazil by capacity. The sponsors are Ebrasil and Golar Power (BNamericas, 2018). The FSRU is expected to arrive by mid-2019.

Another LNG-to-power project is under construction in the port of Açu (Rio de Janeiro). The 1.3 GW plant is expected to start operations in early 2021 and to use LNG supplied by a floating regasification terminal – supply is then expected to switch to associated gas from domestic pre-salt production, when it becomes available.

According to the IMF, Brazil’s GDP is expected to grow by 2.1% in 2019. This recovery is expected to increase industrial-sector demand for natural gas, with an annual average growth rate of 2.4% through the forecast.

Figure 1.31. Natural gas consumption by sector, Brazil, 2000–24

Industry accounts for almost all medium-term natural gas demand growth in Brazil to 2024.

In March 2019, Brazilian Mines and Energy Minister Bento Albuquerque announced that in June the government would present a programme to promote the development of the natural gas sector. The programme, “New Gas Market”, pursues the same objectives as the previous “Gas for Growth” programme during the former Temer administration, and is part of the Bolsonaro administration’s goal to introduce free-market policies into the economy. According to the Economy Minister Paulo Guedes, the government will promote cheap energy that will reduce the cost of natural gas by 50% (Spring, 2019).