The build-out of new natural gas pipelines in Mexico has been progressing two-steps-forward, one-step-back, and that’s been a downer for Texas producers eager to access new markets south of the border. Just a few weeks ago, TransCanada very publicly halted construction on part of a major pipeline network it has been building in east-central Mexico, citing social and legal challenges that already had caused long delays and added costs. But there’s good news out there too. Some new Mexican pipelines are finally coming online, and gas flows through them are ramping up, mostly to serve gas-fired power plants. Better yet, some important pipe and generation projects may finally be completed in 2019. Today, we discuss gas flows across the U.S.-Mexico border and zero in on recent flows through the Nueva Era Pipeline, a 630-MMcf/d pipe from the Eagle Ford to the industrial center of Monterrey.
Since the early years of the Shale Era, Mexico has been viewed as a critically important outlet for incremental gas production in Texas — first as Eagle Ford production rose from 2011 through early 2015, and then as the Permian’s output went ballistic in 2016-17. Three years ago, in our With a Little Help From My Friends Drill Down Report, we explained that Mexico has been opening up its energy markets to competition and, with its own production on the decline, has been becoming increasingly dependent on natural gas, LPG and refined-products imports from the U.S. Then, in our It Takes Two blog series, we outlined the plan by Mexico’s state-owned Comisión Federal de Electricidad (CFE) to rapidly expand its fleet of gas-fired combined-cycle generation units and to support the development of new pipelines to transport U.S.-sourced gas — almost all of it from the Permian and Eagle Ford — to the new power plants. We’ve also provided regular updates, most recently this past summer in Breakthru, where we noted that, after idling for months at about 4.6 Bcf/d, U.S. gas exports to Mexico at long last “broke through” the 5-Bcf/d mark for the first time ever in early July. Since then, though, it’s been idling, with Mexican imports of U.S. gas via pipeline averaging a hair under 5 Bcf/d (4.96 Bcf/d, to be exact) over the past five months.
The need to send additional gas south from Texas into Mexico is becoming more urgent as production in the Permian and Eagle Ford continues to increase. Associated gas output in the crude oil-focused Permian now averages 9.3 Bcf/d, more than double the volume the basin was producing three years ago, according to the latest issue of our NATGAS Permian Report. And the Eagle Ford — hit hard by the crude price collapse mid-decade and the resulting decline in associated gas — has seen its production rebound, though not yet to the record level the basin set in early 2015.