The slower-than-hoped-for build-out of natural gas pipelines and gas-fired power plants in Mexico has been a source of frustration for producers in the Permian Basin, who face pipeline takeaway constraints to their west, north and east and who desperately want to send more gas south. But it’s not just the Permian that benefits as the doors to the Mexican market creak open. The Eagle Ford — the Permian’s less glamorous step-sister — was the primary source of the first wave of gas exports to points south of the border. Now, with the recent opening of the Nueva Era Pipeline from the Rio Grande to power plants and other customers in Monterrey and Escobedo, another Mexican demand outlet will be made available to South Texas producers. Today, we discuss Howard Energy Partners and Grupo CLISA’s newly completed pipeline and the boost it gives to Eagle Ford production.
Mexico’s power-generation sector, now in the midst of a major transition from oil-fired power to gas-fired power (and renewables), is one of the 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. Each of these targets is critical in providing billions of cubic feet a day of incremental gas demand that producers in the Permian, the Eagle Ford, the Marcellus/Utica and other big plays need to support continued production growth. U.S. gas exports to Mexico via pipeline — Mexico is also a leading recipient of U.S.-sourced LNG — have been rising steadily for several years now. Back in 2010, pipeline gas exports to the U.S.’s southern neighbor averaged only 913 MMcf/d, according to the Energy Information Administration (EIA), but by 2014 they had more than doubled (to a hair under 2 Bcf/d). By 2017, they had more than doubled again (to about 4.2 Bcf/d), and in the first four months of 2018, pipeline-gas exports to Mexico were up to nearly 4.4 Bcf/d.
And more growth is on the way. As we said in Part 1 and Part 2 of our “It Takes Two” blog series, the two big drivers of Mexican demand for U.S. gas have been declining gas production within Mexico and the development of thousands of megawatts of new gas-fired generating capacity south of the border, most of it by Mexico’s state-owned electric company, Comisión Federal de Electricidad (CFE). An important assist is being provided by E. Centro Nacional de Control del Gas Natural (CENAGAS), an entity formed by the Mexican government in 2014 to help oversee the development of the new gas pipelines needed to supply the new power plants. All of this has been a tremendous undertaking, so it’s not entirely surprising that the build-out of a number of these new power plants and gas pipelines has taken longer than expected.