Why natgas plays a major role in LatAm power generation

Natural gas is the second most prevalent source of energy for electricity generation in Latin America after hydropower, accounting for 47% of the total, and has more than doubled its share of the region's power matrix since the early 2000s – and this growth is due to various factors, according to a BNamericas Intelligence Series report.

Natural gas, according to World Bank data, generates more than a quarter of the region's annual electricity supply, and the expansion of its use coincides with aggressive investment by several Latin American countries to develop their domestic gas reserves and pipeline infrastructure. Mexico, for example, is investing US$10bn in pipelines in addition to spending US$54mn a year on gas infrastructure modernization and maintenance work.

Mexico expects to add more than 20GW of combined-cycle plants and some 7GW of efficient cogeneration by 2030 - more than half of the anticipated capacity growth.

Brazil, meanwhile, is studying an overhaul of its Petrobras-monopolized gas industry regulations.

Many South American countries have invested in liquefied natural gas (LNG) infrastructure, a move promoted by stalled investments in the upstream gas sector and subsequent supply disruptions, namely in Argentina.

According to the report, a mix of factors underlies the attraction of natural gas for Latin American power markets.

In almost all cases – with the exception of Mexico's drive to lessen dependence on oil and convert to natural gas, reducing power prices to consumers – increased use of gas is not solely due to a desire to reduce emissions, given that the region's reliance on hydropower makes it among the cleanest in the world in terms of power-generation emissions.

Gas-fired generation has expanded in Latin America in response to fuel prices, the evolving needs of local power grids, and energy security issues. Natural gas is a cheaper, more efficient alternative to diesel and fuel oil, especially with the rise of newer technologies such as high-efficiency combined-cycle gas turbines.

The growth of intermittent renewable sources, such as wind and solar, has also created a need for flexible backup capacity, for which gas-fired generators are particularly well suited.

In addition, changing climate conditions, combined with booming electricity consumption, have undermined the reliability of the region's hydroelectric generators, the former factor clearly evidenced by flooding in Peru last month. And the construction of new dams and reservoirs has been blocked by social and environmental opposition in some countries, factors that have created opportunities for developers of gas-fired plants that can provide backup and base load generation during droughts and other critical periods.

"Gas-fired generation is a natural complement to renewable power supply," Antonio Gálvez, regional sales director at Siemens Chile, said in the report.

As a result, and given its wider applications in industry, natural gas is expected to continue to grow in Latin America.

"In terms of megawatts of capacity, the increase in gas-fired energy will be, in general, just as significant as the increase in renewable energy, at least during the next five years or so," according to Sampo Suvisaari, regional director for Latin America North and the Caribbean in the energy solutions division of the Finnish company Wärtsilä.