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US gas exports to Mexico trend near record highs on temperatures, capacity gains

Highlights

Cross-border flows approach record 7 Bcf/d in April

Mexico modeled power burn hits record 4.6 Bcf/d

US gas exports to Mexico could hit record highs over the next two weeks, fueled by rising temperatures south of the border and by recent capacity additions on cross-border and downstream pipelines.

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Earlier this month, exports to the US' southern neighbor hit record levels just shy of 7 Bcf/d, data compiled by S&P Global Platts Analytics shows. The record-setting volumes were accompanied by population-weighted temperatures in the upper 70s Fahrenheit, about 5 degrees above normal, and by a spike in electric cooling demand.

As temperatures transition toward more summer-like averages, pipeline deliveries to Mexico's gas-fired power plants are up sharply compared with levels seen during comparable weather in April 2020 and April 2019. Earlier this month, as temperatures in Mexico climbed to their highest yet this spring at an average 76.5 degrees, modeled power burn hit an estimated 4.6 Bcf/d.

During similar weather last year, modeled power burns in Mexico were about 1 Bcf/d lower, thanks in large part to depressed demand at the height of the coronavirus pandemic. In April 2019, comparable temperatures were associated with burns that were about 500 MMcf/d lower than this year.

Record power plant deliveries this spring have been fueled by a spike in gas imports – two related trends that have been made possible by recent additions in cross-border and downstream pipeline capacity.

Pipeline flows

In April, the 2.6 Bcf/d Sur de Texas – Tuxpan Pipeline, which began commercial operation in September 2019, has seen flows climb above 1 Bcf/d on 11 days – a high mark for the system. Downstream flows have gone to TC Energia's Tamazunchale Pipeline and to Cenagas at the 500 MMcf/d Montegrande interconnect, both providing additional upside for power burn in central Mexico.

Cenagas plans to expand the Montegrande interconnect by an incremental 1 Bcf/d in 2021, although additional infrastructure may be needed to allow the expansion to operate, according to Platts Analytics.

The 1.3 Bcf/d Cempoala Compressor Station has also been undergoing a reversal project for several years and will allow for US gas supply to finally traverse into southern Mexico.

The Cenagas' annual list of purchase orders shows several entries for Cempoala-related activities and materials due by June 2021. The agency's 5-year plan also shows two compressors stations, Lerdo and Tecolutla, that will be expanded and be reversed by 1.6 Bcf/d to allow for southbound flows – potentially key projects to work alongside Cempoala and Montegrande.

Outlook

Over the next two weeks, expanded pipeline capacity in Mexico could allow the US to deliver record or near-record volumes to its southern neighbor. A forecast updated April 26 shows gas demand from the power sector climbing back above 4 Bcf/d by later this week followed similar levels during the first week of May.

A seasonal forecast from Platts Analytics shows US pipeline exports to Mexico may average 6.5 Bcf/d through July, August, and September. While the recent pop is likely weather related, further upside is possible longer term if power loads recover quickly amid a reduction in social distancing. Mexico's load typically increases into July before seasonal temperatures begin declining in September. April to date, load has averaged 36.7 aGW, which is 3.4 aGW, or 10.3%, higher than in April 2020.

While bullish upside for cross-border flows exists for this summer, the June 6 congressional midterm election could also allow for President Lopez Obrador to finalize a proposal that prioritizes CFE generating assets over private ones. The shift in the marginal dispatch curve away from merit-based economics could displace as much as 500 MMcf/d in gas-fired power burn, according to Platts Analytics estimates.