It Takes Two - Supplying Mexico's Growing Natural Gas Demand, Part 2

Mexico’s power sector is one of three major demand centers U.S. natural gas producers and pipeline projects are targeting, the other two being the U.S. power sector and LNG exports. U.S. natural gas exports to Mexico are up 20% year-on-year in 2016 to date to nearly 3.5 Bcf/d––more than double the export volume five years ago––and are poised to soar past 6 Bcf/d by the end of the decade. Mexico’s energy operators are on a tear adding new natural gas-fired power generation capacity and building a sprawling network of natural gas transportation capacity. But delivering increasing volumes of U.S. natural gas to Mexico will require substantial changes on the U.S. side as well, particularly in Texas. Today, we continue our look at plans for adding pipeline export capacity along the Texas-Mexico border.

In Part 1 of this blog, we detailed the veritable natural gas renaissance taking place south of the U.S.-Mexico border. The state-owned Comisión Federal de Electricidad (CFE) is investing heavily in expanding and modernizing its power generation fleet with thousands of megawatts of new, natural gas-fired combined-cycle power plants. And, Mexico’s Energy Secretariat (SENER) has appointed a dedicated steward—Centro Nacional de Control del Gas Natural (CENAGAS)—to oversee an aggressive five-year plan to develop the kind of expansive network of natural gas pipelines that would facilitate Mexico’s conversion to natural gas.

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Last October (2015), SENER unveiled a plan to construct 12 natural gas pipelines over the next five years to connect supply to the country’s demand markets from its northern border with Texas to the deep south of the country and from east to west. In July 2016, CENAGAS presented a slightly pared-down but still robust version of the plan. According to SENER/CENAGAS, about 800 miles of natural gas pipelines are under construction and more than 2,500 miles will be soon, including seven projects totaling 8.0 Bcf/d of transport capacity have been awarded contracts for construction, all with in-service dates in 2017 or 2018. Another two projects were deferred for consideration in the 2017-19 time frame. One of the original projects is now being considered for development by a private entity outside the state’s tendering process, along with two other independent projects (see Part 1 for the list of projects).

A good portion of this new demand is relying on—and in large part has been driven by—availability of low-priced gas from the U.S. via Texas and other states in the Southwest. That’s because even as Mexico is fanning the development of demand and transportation projects, the country’s gas production is in decline. That may change longer term, but at least for the next several years Mexico’s reliance on imports from the U.S. is expected to grow, and U.S. producers and midstream players—in their quest for connecting to new and growing demand sources—have been happy to help.  U.S. exports to Mexico have climbed from about 1.4 Bcf/d in 2011 to 2.9 Bcf/d in 2015 and an average of nearly 3.5 Bcf/d so far in 2016, according to historical supply/demand data from RBN’s NATGAS Billboard report. Much of that growth has happened in the last two years, accelerating as power demand across the border has burgeoned and new export capacity has come online, particularly from Texas. And it’s only expected to grow from there.

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