Tarahumara

For some time now, natural gas producers in the Permian and the Eagle Ford have been counting on rising pipeline exports to Mexico to help absorb a lot of the incremental production in their plays. Their hopes have been bolstered in the past couple of years by the build-out of a number of new pipelines from the Waha and Agua Dulce gas hubs to the U.S.-Mexico border. Gas pipeline development south of the border hasn’t kept pace, though, mostly due to regulatory and construction delays. Also, a recent dispute over tariffs on a newly completed large-diameter pipeline, extending from the southern tip of Texas to key points along Mexico’s Gulf Coast, had left the pipe sitting empty this summer. That tiff has since been resolved and gas is flowing on the new pipeline, allowing those piped southbound exports to hit a daily record high near 5.9 Bcf/d earlier this month and average above 5.5 Bcf/d this month to date. Plus, progress is being made on other planned Mexican pipes too. This all leads us to ask, is the long-promised surge in U.S. gas exports to Mexico just around the corner? Today, we look at the latest developments regarding Mexico’s natural gas pipeline infrastructure additions.

The Mexican market is critically important to Permian producers. Rising gas demand south of the border — along with expected gains in LNG exports from new liquefaction/export facilities along the Gulf Coast — are key to their plans to significantly increase production of crude oil, which brings with it large volumes of associated gas. All that gas needs a market, and nearby Mexico is a natural. For a number of years now, Mexico’s Comisión Federal de Electricidad has been working to implement a plan to add dozens of new gas-fired power plants and to support the development of new gas pipelines to transport gas to them from the U.S. The new pipelines have been coming online at a slower-than-planned pace. But what pipeline capacity has been added across the border from West Texas is already changing Mexico’s gas market. The El Encino Hub in Northwest Mexico is one such area where there are signs of a shifting supply-demand balance. Today, we continue a blog series on key gas pipeline developments down Mexico way and the implications for gas flows, this time delving into the dynamics at the El Encino Hub.

Mexico’s energy sector has been dealing with a fair amount of uncertainty of late. Newly installed Mexican President Andrés Manuel López Obrador has promised to undo elements of the country’s historic energy reform program, limit imports of hydrocarbons, and focus on domestic production and refining. How much will all this affect the export of natural gas from the U.S. to Mexico? It’s too soon to know what the long-term impact might be, but for now, gas exports remain near record highs and the pipeline buildout within Mexico is proceeding. That’s not to say, however, that the infrastructure work has gone without its own set of challenges — many of those were apparent well before the recent political changes. Today, we begin a series examining the opportunities and potential pitfalls ahead this year for Mexico’s natural gas pipeline infrastructure additions.

Mexico has been slowly increasing import volumes of natural gas from the U.S., utilizing spare capacity in the newest pipelines south of the border that access supply from the Permian Basin’s Waha Hub. The recent increases have been muted somewhat by delays in completing other infrastructure inside of Mexico, but one of those big delays is about to be resolved. TransCanada’s long-awaited El Encino-Topolobampo Pipeline is finally nearing completion, and once it’s online there may be a surprisingly big gain in gas export volumes to Mexico. As most of this gas will be supplied directly from Waha, Mexico’s impact on Permian gas balances is likely to jump materially in the weeks ahead. Today, we examine the latest development in Mexico’s natural gas pipeline buildout and its effects north of the border.

Mexico’s natural gas pipeline network is entering a crucial phase of expansion with the expected completion of the La Laguna-Aguascalientes and Villa de Reyes-Aguascalientes-Guadalajara pipelines later this year. These new pipelines will be linked together with the existing Roadrunner, Tarahumara and El Encino-La Laguna pipelines to form the second largest integrated natural gas transportation network in Mexico. This system will link central Mexico with the northwestern part of the country, which is already supplied by gas flowing in from the Waha Hub on the U.S. side of the border and provide additional demand markets for Permian Basin natural gas. Fermaca, a Mexico City-based company, is constructing the new route, and its marketing affiliate, Santa Fe Gas, is actively building a natural gas marketing business within Mexico. Today, we examine Fermaca’s natural gas marketing affiliate and its role in bringing new supply from the U.S. to Mexico’s natural gas market.