U.S natural gas exports to Mexico will require both countries to build more pipeline in certain locations, speakers said on Aug. 14 at the U.S.-Mexico Natural Gas Forum.
In order to get gas to overseas markets and across the border to Mexico, the U.S. gas industry is waiting on a number of north-to-south pipeline projects to come online. Jim Duncan, director of market research for ConocoPhillips, sees between 8.5 Bcf/d and 9 Bcf/d of such projects heading south and entering service over the next few years.
Duncan noted that some industry observers are concerned that, once transportation projects under construction enter service, pipeline capacity might be overbuilt if producers do not quickly ramp up output. "When the pipelines get finished and imports increase, there is going to be a shortfall if there is no response [by producers]," he said.
With Mexico's oil and gas production declining, Duncan said, growing U.S. exports via pipeline and LNG shipments are expected to help Mexico meet its demand for gas, which represents more than half of the country's energy consumption for electric power generation. Eventually, the portion of gas used in power generation will grow to about 70%, he said.
For now, gas transportation capacity constraints, especially those south of the international border, have kept U.S. pipeline exports to Mexico at around 4 Bcf/d, said Ross Wyeno, senior energy analyst at S&P Global Platts.
"The system is just not set up to take the gas yet," he said. "What we're waiting for is more of these fully integrated north-to-south corridors."
Pipelines currently in service allow for the transportation of about 4.8 Bcf/d from South Texas to Northeast Mexico, according to Wyeno. Once in Mexico, roughly 1.5 Bcf/d can get from Northeast Mexico to Southern Mexico, and about 1 Bcf/d can get from Northeast Mexico to Central Mexico.
"The border-crossing capacity is far exceeding the downstream capacity," Wyeno said.
Pipeline capacity constraints in Mexico are due in part to how the country operated before the state opened up the oil and gas market to private investment, said Benjamin Gage, an analyst at NextEra Energy Marketing LLC. Pipelines south of the border were primarily meant to pipe gas produced offshore by Mexico's Pemex Petroquímica, S.A. de C.V. into the country.
"In many ways, the market has moved beyond the capabilities of that [system]," Gage said.
Though Mexico is considered a promising home for U.S. gas, the country could also tap unconventional reserves the way U.S. shale drillers did, said Héctor Moreira, commissioner of Mexico's National Hydrocarbons Commission.
"We are really, really envious of what you have done in terms of developing these unconventional resources," he told the audience at the San Antonio event.
Moreira pointed to the Permian and Eagle Ford formations as evidence that similar resources could be found south of the Rio Grande. "The question is do they extend into Mexico? Well, it would be funny if they didn't [and they] just stopped at the border," he said.
Global demand for gas and cheap resources in the U.S. have spurred the development of U.S. LNG export terminals and border-crossing pipelines. Six LNG projects under construction in the U.S. are expected to bring the total LNG export capacity to more than 9 Bcf/d by the end of 2019. Near-record pipeline shipments to Mexico helped the U.S. become a net energy exporter for three of the first five months of 2017, according to the U.S. Energy Information Administration.
In Latin America, which has received the bulk of U.S. LNG exports from Cheniere Energy Inc.'s Sabine Pass, 196 gas-fired power projects worth a total of about $67 billion are being actively developed, ConocoPhillips' Duncan said.