Pipeline delays hinder Mexico’s gas imports, shift power generation
Total US exports to Mexico rose to an all-time high of 4.3 Bcf/d in August, a mere 6% build compared to last year and well below market expectations earlier this year.
PIPELINE DELAYS HINDERED US GAS EXPORTS TO MEXICO AND BOOSTED MEXICO’S LNG IMPORTS
The lack of export growth this year-to-date can largely be traced back to pipeline construction delays in Mexico, which have limited gas import options and forced the CFE, Mexico’s state-run power company, to depend more heavily on LNG imports and fuel oil for power generation.
In response to constraints on importing additional US pipeline gas, Mexican LNG imports rose to over 0.6 Bcf/d year-to-date, a 15% build over last year. Most notably, the Altamira LNG terminal has taken delivery of 10 LNG cargoes since the beginning of June, three times more than over the same period last year, which were tendered by the CFE earlier this summer in response to supply shortages in Mexico.
THE US HAS DELIVERED AROUND 76% OF MEXICO’S TOTAL LNG IMPORTS THUS FAR IN 2017
Interestingly, the US has emerged as the primary supplier of LNG to Mexico, having delivered nearly 107 Bcf to Mexico this year-to-date, or around 76% of total LNG imports.
In addition to importing more LNG, Mexico has become far more dependent on fuel oil in the power generating sector. Data released by the CFE indicates that total fuel oil consumption rose by 58% during the first two months of the year and, year-to-date, day-ahead power prices have averaged over $70/MWh across all nine control regions, 42% higher than a year-ago, which likely points to higher fuel oil dependence in the generating fleet.
UPCOMING PIPELINES WILL NEED TO ENTER SERVICE FOR MEXICO TO CONTINUE INCREASING GAS IMPORTS FROM THE US
Looking into 2018, there are a number of upcoming pipelines which will need to enter service for Mexico to continue increasing gas imports from the US. The most important of these expansions are in the western half of the country and will allow for Permian Basin associated gas production to reach demand markets in Central and Western Mexico.
CURRENT STATUS OF THE MEXICAN GAS PIPELINES IS LARGELY UNKNOWN
However, unlike FERC sanctioned projects in the US, which are required to publish construction status reports, the current status of these Mexican gas pipelines is largely unknown. The timely completion of these pipelines will be instrumental in both limiting constraint pricing in Mexico as well as alleviating oversupply in areas such as the Permian Basin.