I Got Mexico - U.S. Natural Gas Living Good South of the Border

The fundamental drivers of global energy markets are shifting as the world begins to recover from the crisis induced by COVID-19. North American natural gas markets have been upended this year by a multitude of events, chief among them the plunge in crude oil prices and a dramatic drop in LNG exports. Other smaller, yet relevant, factors have been gyrating as well, including natural gas exports to Mexico by pipeline. After climbing to new highs last fall, piped gas exports to our southern neighbor suffered significantly during the worst of this spring’s series of calamities, but things are looking up. Total exports across the border have reached new highs this month, with just-completed infrastructure in Mexico assisting in the jump. Perhaps things are getting back to normal, at least in this small corner of the energy markets. Today, we provide an update on exports of natural gas from the U.S. to Mexico.

Development of the Mexico natural gas market has been a hot topic ever since the energy reforms there were passed in 2013, the evolution of which we covered a couple of years ago in Welcome to the Future. Lately, though, there have been a number of stumbles in the buildout of the natural gas pipeline infrastructure that started in earnest over the last decade, with a high-profile squabble playing out somewhat publicly last year between the president of Mexico and the companies building the new ducts. However, those issues were resolved and a major new undersea pipe from South Texas to eastern Mexico, the 2.6-Bcf/d Sur de Texas-Tuxpan Pipeline (STP for short and shown as the red line in Figure 1), came online last fall (see I Feel It Coming). When we published that blog, we wondered if the new pipeline’s start-up would usher in a new wave of progress in the Mexico pipeline buildout. Well, it’s been over nine months since we wrote that blog, and we are only just now back with an update. That should tell you something, but it isn’t all bad news in Mexico. The last few weeks have seen new highs in exports from the U.S. to Mexico, and it appears a new major route being built by Fermaca (dashed yellow-and-black lines in Figure 1) may be finally nearing commercial operation. The line will allow Permian gas to access Central Mexico; for more background on the Fermaca pipelines in Mexico, see our Before The Deluge series and Closer blog.

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