Brazil started importing LNG in 2009 as an insurance against a repeat of a power shortage similar to the one which crippled the economy in 2001, and which had such strong repercussions for the 2002 presidential election. The Brazilian power sector is heavily dependent on hydroelectric plants, whose availability is not only impacted by climatic phenomena but also by the government’s decision to restrict the construction of plants with large reservoirs, favouring instead plants fed by rivers. In the period 2011-2015, imports of LNG increased dramatically as the Brazilian economy was still growing and a prolonged drought resulted in the virtual depletion of regional hydro reservoirs.
Although South American markets have provided a useful outlet for LNG suppliers with surplus output over the past few years, it would seem that prospects for future demand are dampening at just the time when the next surge of LNG production is set to hit the market from 2017-2020. Economic analysts are predicting a subdued Brazilian economy until 2018.
Despite this scenario some international players are positioning themselves to capture potential markets for their LNG in Brazil with the hope that more gas-fired power plants will be dispatched as the economy improves in 2018-2019 and also because more thermal power back-up will be needed with the increase in wind and run-of-river hydro capacity.
Published by the Oxford Institute for Energy Studies