Mexico Is Also Importing U.S. Liquefied Natural Gas
We all know that Mexico is importing huge amounts of piped U.S. natural gas (here), now at around 4.1 Bcf/d and mostly coming through Texas. And our pipeline capacity to export to Mexico will expand by nearly 50% to 11 Bcf/d by summer, surging to at least 15 Bcf/d by the end of next year. Just a few days ago, Energy Transfer Partners’ launched its Trans-Pecos cross-border pipeline, adding an additional 1.4 Bcf/d to Mexico’s gas pipeline system and one of four new privately owned such lines that will be operating by summer.
There are now nearly 20 gas pipelines that enter Mexico from the U.S. Less environmental pushback in Mexico against required energy infrastructure (both from the government and public) will continually make new builds easier as demand rises. As a still developing nation, huge latent demand potential in the country makes investments particularly attractive as deregulation in Mexico progresses. Demand for modern fuels like oil and gas in Mexico is growing at 3-5% per year.
What’s not so well known, however, is that Mexico is also the main source of U.S. LNG, perhaps the world’s fastest growing energy market and the main arena where the U.S. stands to rapidly increases its global relevance. Mexico has been taking in loads of U.S. LNG from Sabine Pass, the only current U.S. LNG export facility in the contiguous U.S. As of end of March, Mexico accounted for 18 of the 90 cargoes that left Sabine Pass since operations commenced in February 2016 (note: as of writing, there are about 10-12 more U.S. tankers in route to destinations).
Mexico now imports about 55% of its current gas needs, and this could reach 75% by 2020. With dry gas production already down 15-20% this year, troubled Pemex (as of last year, saddled with $90 billion in pension liabilities!), Mexico’s oil and gas monopoly that posted a staggering $14-15 billion loss in 2016, announced in early March that it would be cutting its budget for harnessing natural gas 15% this year to just over $3 billion. Slightly problematic for a country that uses gas for nearly 60% of its electricity.
Mexico has taken in the most U.S. LNG cargoes.
Pipelines dominate of course, but U.S. LNG exports to Mexico are high too.
Manzanillo (Mexico’s largest port and a city that I know better than most) on the west central coast is the most utilized of Mexico’s three regasification terminals, the other two being Altamira (on the Gulf Coast) and Costa Azul (by the California border). Due to pipeline bottlenecks, LNG imported into Manzanillo has increasingly supplied Mexico’s central region, which includes the country’s two massive metropolises, Mexico City and Guadalajara. The $5.4 billion expansion of the Panama Canal that opened for business last June slashed the one-way voyage from Sabine Pass to the Manzanillo terminal to just 10 days, down from the 27 days the old route took around Cape Horn.
Mexico has a gas pipeline system just 1/9 the size of that of Texas, so LNG has been forced to play a larger role. Mexico’s domestic gas supply has been tight. A few weeks ago, state-owned utility (CFE) announced a rare prompt buy tender for two LNG cargoes delivered to the country’s normally well-supplied Gulf Coast import terminal.
Commissioned in July 2016, technical issues have limited the Los Ramones Phase II South pipeline’s (running from the southern terminus of Los Ramones Phase I near Monterrey, Nuevo Leon southward to Guanajuato) capacity to ease gas shortages in the central region and displace more costly LNG from Manzanillo. At the end of 2016, both North and South segments of Phase II of Los Ramones pipeline operated at just 0.4 Bcf/d, or less than 30% of the nameplate capacity of 1.430 Bcf/d.
Delays for gas delivery in Mexico are unfortunately common. Impulsora Pipeline recently asked FERC for more time to complete the border crossing facilities for its pipeline from Webb County, TX, by the Eagle Ford shale play to the Texas-Mexico border, pushing in-service on the border crossing from June 1 back till December 31.
The constrained demand is an enormous block for a nation desperately trying to extend its personal electricity usage that is just 1/3 that of OECD allies. On March 10, Cenagas, the independent pipeline system operator, stopped receiving submissions for its first transportation capacity open season with demand surpassing supply by 30%.
Contradicting the national goal to capitalize on low natural gas prices to move away from an oil-based economy, CFE faced major gas shortages in January and February: diesel use therefore nearly quadrupled and fuel oil demand jumped about 60%. Additionally, a lack of gas storage facilities restricts the ability of the system to fully leverage the use of natural gas, a “just-in time” fuel that requires consistent access to pipelines. Mexico has enough storage to meet just a few days demand, compared to nearly three months for other OECD members. Natural gas storage allows supply to match demand on any given day.
Mexico has traditionally received its LNG from Nigeria, Qatar, and Peru, with the last having the clear advantage because of proximity. Although Mexico took nearly half of the 70+ tankers Peru loaded in 2016, Peru has struggled with lower revenues from Mexico because prices are linked to U.S. Henry Hub prices, which have dropped from $4.37 in 2014 to just $2.50 in 2016. Mexico and Peru have been in a price dispute, so Mexico has issued tenders for LNG from other suppliers and has understandably jumped on the U.S. LNG bandwagon – which is assured to continually grow.