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Mexico slows natural gas imports from US Southwest in favor of Texas flows

Highlights

Added pipeline capacity offers choices for US gas exports to Mexico

Waha Hub pricing cheaper, less volatile than US Southwest spot prices

Mexico has decelerated gas imports from the US Southwest in favor of sourcing more gas from Texas this October, pipeline nomination data shows.

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While part of the shift is seasonal, expanded pipeline connectivity with Texas, including the Samalayuca-Sasabe and Wahalajara systems, has provided grid operators in Mexico with more choices and reduced importers' exposure to the US Southwest's more volatile, costly gas pricing.

Gas exports to Mexico from the US Southwest -- excluding West Texas -- have averaged 570 MMcf/d so far in October, down by about 200 MMcf/d from September. At the same time, exports from Texas increased 170 MMcf/d from last month to average 5.45 Bcf/d for Oct. 1-19.

Two regions in Mexico directly import gas from the US Southwest: Northwest Mexico, which comprises Sonora and Sinaloa states, and Baja California, which consists of Baja California and Baja California Sur.

Around half of the 200 MMcf/d drop can be accounted for by lower gas-fired power demand in Baja California, while the other 100 MMcf/d can be attributed to a sharp drop in flows to Northwest Mexico along Kinder Morgan's Sierrita Pipeline.

Gas demand in Northwest Mexico has remained steady, averaging around 460 MMcf for the first half of October, up just 20 MMcf/d from the last two weeks of September, according to S&P Global Platts Analytics modeled data.

Sierrita Pipeline, which flows gas to the US-Mexico border near Sonora in Northwest Mexico, has no planned or unplanned maintenance projects on its electronic bulletin board. A spokesperson for Kinder Morgan declined to comment.

Modeled data from S&P Global Platts suggests that increased volumes from the North region of Mexico, which sources its gas from Texas, might have replaced those flows.

North Mexico-to-Northwest Mexico flows increased to average 380 MMcf/d for Oct. 1-15, up from 290 MMcf/d for the latter half of September.

Natural gas has become more available in the North of Mexico as newer pipelines including Fermaca's 5 Bcf/d Waha system and TC´s South of Texas-Tuxpan 2.6 Bcf/d marine pipeline increase their operations.

The 472 MMcf/d Samalayuca-Sasabe pipeline, which came online in April 2021, has provided an additional route for gas to enter North Mexico via Texas and be delivered to Northwest Mexico.

Higher, more volatile prices

Spot gas prices in the US Southwest have been some of the country's priciest and most volatile over the last six months, driven higher by constrained pipeline capacity. El Paso, South Mainline -- which captures westbound flows of Permian gas along EPNG's mainline -- has averaged a $2.14 premium to West Texas' Waha Hub since June.

Like other Southwest pricing locations, El Paso, South Mainline, has seen ample volatility: The location has had a daily price swing of more than $1/MMBtu 28 times since June. Waha Hub, in contrast, has only had one price swing of more than $1/MMBtu in that time.

Maintenance and repair work on El Paso Natural Gas and SoCalGas systems have limited the volume of gas able to flow west from the Permian Basin.

After a pipeline rupture near Coolidge, Arizona, Aug. 15, the EPNG system restricted westbound flows on its Line 2000 to complete repairs. Platts Analytics data shows that EPNG deliveries to Ehrenberg, a receipt point in Arizona near EPNG's interconnect with Sierrita Pipeline, have averaged 1.05 Bcf since Aug. 15, down 320 MMcf/d from the 30 days prior to Aug. 15.

Reducing exposure to higher, more volatile prices might be more of a side benefit than a main driver, though, according to David Rosales, an independent consultant in Mexico City.

"The main factor the grid operator uses when deciding where to import from is not price, but where demand is found," Rosales, a former public official, said. "There are areas of the country, like the northwestern states of Sonora and Sinaloa, that are mainly served by US Western gas. These states increase their demand during summer. As temperatures begin to fall, so does consumption."

"At the same time, gas coming from the Waha region is more easily moved by CENACE as it can be brought in through different pipes."