Breakthru - Infrastructure Additions Send U.S. Gas Exports to Mexico Soaring Above 5 Bcf/d for the First Time Ever

After idling near the 4.6-Bcf/d level for months, piped gas flows to Mexico raced to a record of more than 5 Bcf/d for the first time earlier in July, and have hung on to that level since. This new export volume signifies incremental demand for the U.S. gas market at a time when the domestic storage inventory is already approaching the five-year low. At the same time, it would also signify some much-needed relief for Permian producers hoping to avert disastrous takeaway constraints — that is, if the export growth is happening where it’s needed the most, from West Texas. However, that’s not exactly the case. What’s behind the sudden increase, where is it happening and what are the prospects for continued growth near-term? Today, we analyze the recent trends in exports to Mexico.

Watching gas export flows to Mexico in recent months have been a bit like turning the crank on a jack-in-the-box — pipeline exports were primed to explode, with West Texas’s Permian gas production at record levels and ample available pipeline capacity to the border. But the lid had yet to pop up. After initially gaining on 2016 levels, volumes moving across the border had been hovering near the 4.5-Bcf/d level since mid-2017, as indicated by the tight relationship between the 2017 (medium blue) and 2018 (dark blue) lines in Figure 1. However, that shifted dramatically this month.

In July, deliveries to Mexico jolted higher in a vertical ascent past the 5-Bcf/d mark for the first time ever (orange-dashed oval). This could be observed in near-real time using daily pipeline flow data, which RBN tracks in its NATGAS Permian report. From July 1 to July 3, export volumes jumped by 200 MMcf/d to 4.9 Bcf/d, and by July 5 they got another bump to just over 5 Bcf/d. That record was then surpassed two days later, when deliveries to Mexico posted at nearly 5.3 Bcf/d. Since then, the volumes have stayed squarely in 5-Bcf/d territory, which amounts to a 400-MMcf/d gain from the prior month and 600 MMcf/d above last year at this time.