Denver — US gas exports to Mexico could see significant upside in 2020, thanks to recent infrastructure upgrades and growing, latent demand south of the border. Any potential growth in southbound volumes, though, will depend on the completion of key pipeline projects required to access Mexico's new end users.
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With more gas moving southbound into Mexico, US producers can hang their hopes on a more tightly supplied market in the months ahead - a balancing factor that could be enough to lift benchmark gas prices from the $2.30/MMBtu range, where they've largely remained over the past eight months.
South of the border, incremental pipeline supply could be expected to have the opposite effect, lowering prices - particularly in North and Northeast Mexico where US gas has its most extensive reach.
The biggest impact would likely come at the Los Ramones-Monterrey and Reynosa hubs. In 2019, prices at the two hubs have averaged $3.03/MMBtu and $2.96/MMBtu, respectively - well above nearby locations in South Texas, S&P Global Platts data shows.
SUR DE TEXAS-TUXPAN
Earlier this year, startup of the 2.6 Bcf/d Sur de Texas-Tuxpan project - now the largest cross-border pipeline in operation - revealed the potential, but also the limitations for Mexico's gas demand.
After entering service, flows on the pipeline quickly ramped up to about 600 MMcf/d. In November, deliveries climbed to record highs at over 800 MMcf/d, according to S&P Global Platts Analytics data.
The majority of that supply has traversed to TC Energy's Tamazunchale Pipeline at Naranjos, located on Mexico's Gulf Coast, about 380 miles directly south of the US border.
Flows on the pipeline have moved westbound into central Mexico and a ramp in gas deliveries to power generators in the region shows that US supply is already been accessing pent-up demand there.
Additionally, Platts Analytics data shows that the marine pipeline is also likely delivering gas to the Altamira V power plant, displacing costly imports of LNG to the Gulf Coast terminal co-located there.
With a limited amount of other demand accessible in Mexico's North and Northeast, though, US supply on the NET Mexico Pipeline has declined about 200 to 300 MMcf/d since the startup of Sur de Texas.
Data collected by Platts Analytics also suggests that certain end-users in Veracruz state and the Yucatan Peninsula are still being underserviced by Mexico's domestic gas grid.
Accessing new and latent demand, particularly in southern and Peninsular Mexico, will depend on some key infrastructure upgrades entering service - some of which could come as early as first-quarter 2020.
|Mexico upcoming natural gas pipeline projects|
|Section||Status||Capacity (MMcf/d)||% complete||In service|
|El Encino - La Laguna||Complete||1,500||100%||18-Mar|
|La Laguna - Aguascalientes||Under Construction||1,189||95%||19-Dec|
|VDR - Ags. - Guad||Under Construction||886||89%||20-Mar|
|Guadalara Interconnect||Under Construction||250||N/A||20-Mar|
|Manzanillo Pipeline Reversal||Under Construction||377||N/A||20-Mar|
|Sur de Texas - Tuxpan||Complete||2,600||100%||19-Jun|
|Tuxpan - Tula||Under Construction||886||87%||22-Jan|
|Tula - Villa de Reyes||Under Construction||886||86%||20-Mar|
|Monte Grande Interconnect||Complete||500||100%||19-Jun|
|Cempoala Reversal 1||Complete||850||100||19-Jun|
|Cempoala Reversal 2||Under Construction||550||N/A||20-Mar|
|Mayakan Interconnect II||N/A||350||N/A||20-Jul|
|Sierrita Lateral Expansion||Under Construction||230||N/A||20-Apr|
|Samalayuca - Sasabe||Under Construction||472||82%||20-Sep|
|Monterrey Hub Expansion||N/A||200||N/A||TBD|
|Reynosa Loop||N/A||350 - 650||N/A||2021|
|Jaf Storage Field||N/A||10 Bcf||N/A||2024|
|Guaymas - El Oro||Under Construction||510||N/A||TBD|
|Source: S&P Global Platts Analytics|
Completion of the Cempoala compressor station reversal, a startup to flows through the Monte Grande Interconnect and battery of looming milestones on the Wahalajara Pipeline system, number among the most important midstream developments in Mexico next year.
The Cempoala Compressor Station Phase II project is scheduled to enter service at the end of first-quarter 2020, bringing full compression to the station for a total southbound capacity of nearly 1.3 Bcf/d. The project is vital for bringing incremental cross-border volumes further south, particularly into southern and peninsular Mexico. The project should also help flows on the NET Mexico pipeline return to levels seen prior to the startup of Sur de Texas, according to Platts Analytics.
Upon entering service, the Monte Grande Interconnect will provide Sur de Texas volumes their only point of access to Mexico's Sistrangas national pipeline grid and the incremental demand available on that network. The mechanically complete 500 MMcf/d interconnection, though, is only expected to enter service upon completion of ongoing upgrades at the Cempoala compressor.
On the Wahalajara pipeline system, at least four looming project completions next year promise to bring heavily discounted US gas supply from West Texas to central Mexico.
The La Laguna-Aguascalientes segment, which was last expected to be completed in October 2019, could enter service at any time, possibly without further notice. The Villa de Reyes - Aguascalientes-Guadalajara pipeline and the Guadalajara Interconnect are both expected by March 2020. The related Manzanillo-Guadalajara Pipeline Reversal, also expected by March, could potentially displace LNG import volumes at Manzanillo.
Taken together, the Cempoala compressor, Monte Grande Interconnect and Wahalajara midstream projects could boost Mexico's gas demand by some 4% next year, with the majority of that increase coming from the power generation sector, according to Platts Analytics.
Another major impact for central Mexico, specifically, would come in the form of lower-cost supply. According to Platts Analytics, the landed cost of US pipeline gas in in the central region could range from $2.94 to $4.04/MMBtu next year, well below the Altamira LNG netback and transport cost estimate of $5.18/MMBtu.
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