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Here to Stay - The Growing and Possibly Enduring Role of LNG Imports in Mexico's Gas Market

Imported liquefied natural gas from the U.S. is helping Mexico address major challenges facing its gas sector. For one, LNG shipments from the Sabine Pass export terminal in Louisiana to Mexico’s three LNG import facilities have been filling a gas-supply gap created by delays in the country’s build-out of new pipelines to receive gas from the Permian, the Eagle Ford and other U.S. sources. Imported LNG also is playing — and will continue to play — a key role in balancing daily gas needs within Mexico, which has virtually no gas storage capacity but is planning to develop some. Today, we consider recent developments in gas pipeline capacity, gas supply, LNG imports and gas storage south of the border.

For a few years now, we have been writing regularly about Mexico’s efforts to shift from oil-fired power generation to natural gas (and renewables), as well as the country’s development of vast networks of gas pipelines to help deliver U.S.-sourced gas from Texas and other U.S. border states to new gas-fired combined-cycle plants and industrial and other users in northern, central and even southern Mexico. 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 imports of natural gas, liquefied petroleum gasses (LPG) and refined products from the U.S. Most important to our discussion today is that Mexico’s state-owned Comisión Federal de Electricidad (CFE) has been investing heavily in expanding and modernizing its power generation fleet with thousands of megawatts of new, natural gas-fired power plants, and the country has been developing new, high-capacity pipelines to supply growing gas-fired generation demand (see our It Takes Two blog series). As Figure 1 shows, the power-plant/pipeline build-out resulted in a sharp rise in U.S. gas exports to Mexico via pipeline (blue shaded area) in 2015, when pipeline gas exports increased 44%, and 2016, when they rose 23%, according to the U.S. Energy Information Administration.

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