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Analysis: Sur de Texas flows reach record high, shifting US, Mexico gas balance

Highlights

Mexico deliveries from pipeline hit 750 MMcf/d Friday

US supply displaces domestic gas, activates latent demand

Denver — Transmission volumes on the Sur de Texas-Tuxpan Pipeline climbed to a record high late last week as the cross-border route continues to move more South Texas gas supply into central Mexico.

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Deliveries Friday from the new pipeline climbed to their highest yet at 750 MMcf/d.

Since entering commercial service September 17, supply delivered to Mexico on Sur de Texas has averaged about 580 MMcf/d. Deliveries from the pipeline Tuesday were estimated at roughly 640 MMcf/d, the most recently available S&P Global Platts Analytics data showed.

Now the largest cross-border pipeline in operation, the 2.6 Bcf/d Sur de Texas route has already begun affecting supply-demand dynamics, both inside Mexico and in the South Texas gas market.

MEXICO IMPACT

Imported gas delivered to Mexico's Gulf Coast on the Sur de Texas pipeline is having both direct and knock-on supply-demand impact in the country's gas market, according to Platts Analytics.

Along the coast, volumes from Sur de Texas have entirely displaced domestic supply as the principal source of gas on Tamazunchale -- a key east-to-west supply corridor that moves gas from Mexico's Gulf Coast to the industrialized region in and around the country's capital city.

The Tamazunchale Pipeline redelivers gas supply to Mexico's existing domestic gas grid, known as the Sistrangas system. The marine pipeline has pushed redeliveries up to record levels.

Indirectly, the displacement of Mexico's own domestic supply with imported gas is also helping to improve supply balances in both central and southern Mexico.

According to Platts Analytics, that additional supply in central Mexico has actually activated latent demand from industry and power generators, which has grown about 200 MMcf/d since Sur de Texas entered service. In southern Mexico, demand has grown about 100 MMcf/d over the same period.

SOUTH TEXAS

In South Texas, the near-simultaneous startup of Kinder Morgan's 2 Bcf/d Gulf Coast Express -- an intrastate pipeline not required to report flow volumes publicly -- has largely obfuscated the market impact of Sur de Texas exports.

One clear result of the pipeline's startup, though, has been the displacement of export volumes on other pipelines -- most notably NET Mexico.

Following the marine pipeline's mid-September commissioning, southbound flows on NET Mexico declined more than 250 MMcf/d compared with the prior 30-day average, Platts Analytics data shows.

At supply hubs in South Texas, though, cash basis prices have changed little in recent weeks.

At Texas Eastern-South Texas, basis prices are down just 1 cent compared with the prior-month average. Over the same period, basis at Houston Ship Channel has climbed about 3 cents/MMBtu, Platts data shows.

Tennessee Zone 0 basis has shown the largest change in price across South Texas, declining to negative 24 cents/MMBtu over the past week, down 28% from the 30 days prior to Sur de Texas' start.

But the downward movement is likely a result of the GCX pipeline bringing cheap Permian gas to the Texas Gulf Coast.

-- J. Robinson, jrobinson@spglobal.com

-- John Hilfiker, jhilfiker@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com