Crazy - The Topsy-Turvy World of Mexican Gas Supply

Mexico’s natural gas supply situation is in a state of flux, to say the least. Gas production within Mexico continues to decline, but there’s hope it can rebound in the country’s Burgos Shale region. Gas demand is rising fast, and new gas pipelines are being built to deliver Permian and other U.S. gas to new Mexican power plants. At the same time, though, delays in completing some of these new pipes have forced Mexico’s electricity authority to turn to LNG imports to keep gas supply and demand in balance. And yet, plans are afoot to export LNG to Asia from Mexico’s west coast by the early 2020s — gas that, by the way, would initially originate in Texas. Today, we explore recent developments in the Mexican gas arena.

Exports of natural gas from the U.S. to Mexico have increased sharply over the past few years, driven by a combination of rising Mexican demand for gas (mostly to fuel a fast-growing fleet of new gas-fired combined-cycle power plants) and declining Mexican gas production. In 2016, exports of U.S. natural gas to Mexico via pipeline averaged 3.8 billion cubic feet/day (Bcf/d), more than four times higher than they were in 2010, and in the first eight months of 2017 pipeline-gas deliveries from the U.S. to Mexico averaged 4.2 Bcf/d, according to the Energy Information Administration (EIA). As we said in Part 4 of our “It Was Good Living With You (W)aha” blog series on the Waha gas hub in West Texas, the pace of pipeline-export growth to Mexico in late 2017 and in 2018 will be tied in large part to how quickly new gas pipeline capacity can be completed within Mexico, but a number of pipeline projects south of the border have experienced delays.

In addition to setbacks on the pipeline construction front, Mexico has been challenged by fast-declining natural gas production within its borders. According to Petróleos Mexicános (Pemex), gas production in Mexico averaged only 4.1 Bcf/d in the July-through-September period in 2017, down from 4.8 Bcf/d in the same period last year and 5.5 Bcf/d in the summer of 2015. Mexico’s Secretaría de Energía (SENER) hopes to turn things around by encouraging development of the natural gas-rich Burgos Shale region, which lies just across the Rio Grande from South Texas’s newly resurgent Eagle Ford play. But development of the Burgos will take time and success there is no sure thing (see Do You Believe in Magic?).

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