Brazil's record LNG imports draw U.S. supply away from gas-thirsty Europe

Brazil’s imports of LNG are set to hit a record in September, data from Refinitiv and consultancy Kpler shows, as U.S. cargoes normally meant for Europe are diverted to the Latin American nation to address a power shortage.

The worst drought in almost a century has starved the hydropower plants that normally supply nearly two-thirds of Brazil’s electricity. The country has, as a result, turned to U.S. gas to keep its lights on, with its LNG purchases helping drive global gas prices to record levels.

“The strong demand from Brazil means there is less LNG supply being directed to European terminals,” said Laura Page, senior LNG analyst with Kpler consultancy firm.

European gas storage has fallen to its lowest in at least 10 years, making traders fiercely compete for LNG ahead of the winter heating season in the Northern hemisphere. Prices in Europe and Asia are at record seasonal levels.

IMPORTS TO JUMP

More than 80% of Brazil’s LNG deliveries this month will come from U.S. plants in Louisiana and Texas, Refinitiv data shows. Overall gas imports are set to hit 1 million tons by month’s end, up nearly 20% over July’s record, Kpler estimates.

“The worst month (for demand) will be October,” said Rivaldo Moreira Neto, chief of Brazilian consulting firm Gas Energy. “I don’t expect any improvement in the next three to six months.”

In July, U.S. LNG purchases by Brazil and Argentina combined surpassed China’s, with the two taking 62.4 billion cubic feet (bcf) of gas, compared to China’s 42.2 bcf, the U.S. Department of Energy (DOE) said.

A record 142 vessels carrying the super-chilled fuel from the United States landed in Brazil in the six months ended July 31, the DOE said. Some partially discharged in Brazil and emptied their tanks in Argentina. An additional 17 cargoes are on their way.

ADDED STORAGE

New LNG terminals that will increase import capacity are opening as state-controlled Petroleo Brasileiro relinquishes what was a near-monopoly in natural gas.

Last week, a power plant backed by BP Plc gas connected to one of the first privately owned LNG import terminals was turned on months ahead of schedule to avoid blackouts.

“Until it rains, and we don’t know when it is going to happen, price levels will cause despair,” said a trader who buys cargoes for Brazil.