Southern Cone gas and power short-term outlook: May 2022

Since last November, hydrology in Brazil has been recovering quickly and put the country’s gas and power markets in a comfortable position, reaching nearly 75% of hydro reservoir level. However, these days might be about to end. With the start of the dry season, the hydrology recovery process has deaccelerated, indicating that thermal power plants might resume operation shortly. In addition, YPFB has reduced gas flows to Brazil in 30%, increasing country’s reliance on LNG. Fortunately, the situation is far from what happened in 2021, as thermal dispatch will not increase significantly and the Route 3 start-up will also loosen the gas balance. Regarding the change in YPFB’s strategy, the new price set in the addendum with IEASA has motivated the lower volumes delivered to Brazil that is affecting the dynamics in the Southern Cone. This price is compensating the penalties from the GSA with Petrobras and it is resulting in higher revenues to the Bolivian company.