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Demand displacement, accessibility to limit Q1 imports

US gas pipeline exports to Mexico rebounded to their highest in four weeks Wednesday following the recent holiday period, but volatility in cross-border flows is likely to continue through the first quarter.

Deliveries to points south of the border were estimated at over 5.6 Bcf/d at midweek and come following a sharp two-week decline from late December to early January when flows briefly dipped below 4 Bcf/d, data from S&P Global Platts Analytics shows.

As the holiday period comes to an end and the country's workforce returns to offices and industrial parks, gas demand for power generation should remain reliably higher, keeping flows above 5 Bcf/d.

Through the first quarter, though, Platts Analytics expects that a combination of factors could keep pipeline exports to Mexico in the low-5 Bcf/d range, down from record highs around 5.8 Bcf/d in late 2019.

VOLATILITY

After reaching a monthly average record-high at nearly 5.5 Bcf/d in October, US exports to Mexico trended downward toward the end of last year, due only in part to seasonal fluctuations in demand.

According to Platts Analytics, downstream constraints on the national pipeline grid have continued to pressure and displace NET Mexico pipeline exports.

Following startup of the Sur de Texas-Tuxpan pipeline in September, a significant number of end-users in the country's Northeast and beyond appear to have shifted their gas supply source away from NET Mexico in favor of Sur de Texas. With limited access to additional end-users served by NET Mexico - and accessible segments of the national pipeline grid - import volumes on NET have remained suppressed since September, averaging about 300 MMcf/d below levels observed prior to startup of the competing Sur de Texas flow corridor.

A continuation of this trend will likely keep Mexico's gas import demand around 5.3 Bcf/d, at least in the near term, according to a recent forecast from Platts Analytics.

By March, though, potential startup of the fully remodified Cempoala compressor station could provide access to new, incremental demand inside Mexico - demand that could be serviced both from NET Mexico and Sur de Texas, via the recently inaugurated Monte Grande interconnect.

Beyond March, gas consumption from newly accessible end-users in Mexico, along with displacement of LNG, should contribute to an uptick in gas imports of at least 500 MMcf/d, and potentially more, according to forecasts.

ELECTRIC LOAD LINKAGE

Recent fluctuations in Mexico's gas demand have also come from a tightening linkage between the country's daily electricity load and its imports of US pipeline gas.

As gas imports continue to displace high sulfur fuel oil and regasified LNG in the country's generation stack, import demand in Mexico has become increasingly correlated with generators' demand for the fuel.

In fact, an emerging trend shows gas exports to Mexico have remained reliably lower during weekend days when commercial and industrial power consumption typically declines. Import and load data from late December and early January shows that this trend is particularly strong during holiday periods. According to Platts Analytics, this trend is likely to continue and potentially become more pronounced in the months and years ahead, even as Mexico's total gas imports continue to rise.

-- J. Robinson, jrobinson@spglobal.com

-- John Hilfiker, jhilfiker@spglobal.com

-- Edited by Rocco Canonica, newsdesk@spglobal.com