Demand for natural gas in Mexico is growing at a rate that is two to three times the country's gross domestic product growth, according to Raymond James & Associates. Piping gas south of the border to meet this demand is the big growth story for U.S. gas producers in the years ahead, the firm said Monday.

U.S. gas exports to Mexico have grown from less than 1 Bcf/d in 2010 to about 3.4 Bcf/d this year, Raymond James said, adding that it expects exports to be 4.5 Bcf/d next year, on their way to 7-8 Bcf/d by 2020. By comparison, the firm's analysts wrote, U.S. liquefied natural gas (LNG) exports are expected to average a little more than 1 Bcf/d next year and increase to 8-9 Bcf/d "at the very end of the decade."

Gas fired power generation is the engine of growing Mexican gas demand.

"Mexico is especially focused on boosting gas-fired generation," the firm said. "Currently, gas-fired power plants account for approximately half of Mexico's aggregate generation capacity of about 60 GW. The government is targeting a near-doubling of aggregate capacity to 110 GW by 2028, driven overwhelmingly by a 50 GW increase in gas-fired generation."

Driving the move to gas are the environment and economics; even gas from LNG -- not to mention pipeline gas -- is cheaper than petroleum.

While Mexico has substantial shale natural gas resources of its own (more than 680 Tcf, according to the U.S. Energy Information Administration), these are not seen coming into significant development until years from now as the country focuses more intently on increasing oil production.

In September, Raymond James said in a note that the main objective of Mexico opening its upstream sector to outside investment is increasing oil production as opposed to increasing natural gas output. Domestic natural gas resource development, including shale plays, is seen as secondary, according to the analysts.

The government has yet to offer up shale acreage to foreign operators, Raymond James noted. "The first acreage round featuring shale will not come until the second half of 2017 at the earliest, and we would not expect significant production uplift until the end of the decade (and that may be too optimistic)," the firm said.

In the meantime, there has been no shortage of activity in the midstream sector to connect U.S. gas with markets in Mexico. According to Raymond James, there are 17 points where U.S. gas can enter Mexico, and 11 of these are in Texas. To remove bottlenecks south of the border, the Mexican government has embarked on a US$8 billion program to expand pipeline infrastructure.

According to Raymond James, the "highest impact" project to come online to date has been the NET Midstream Los Ramones Norte/Sur project. Since last year, it has increased capacity into Mexico by 1.4 Bcf/d, the analysts said. Spectra Energy is expanding its system north of the U.S.-Mexico border to serve Mexican demand. TransCanada Corp. is active south of the border. When the Sur de Texas project comes online in 2018, it will add another 2.6 Bcf/d of capacity, the analysts noted. Additionally, Kinder Morgan Inc.,Energy Transfer Partners LP and others are working on midstream projects to serve Mexico.

If Mexico's consumption of U.S. gas reaches 7-8 Bcf/d by 2020, it will amount to about one-third of Raymond James' projected U.S. gas supply growth over the next four years, the firm said.

Get the latest on Mexico’s energy buildout from the leaders who are shaping it with NGI’s Mexico Natural Gas infrastructure Webinar.

To get a better picture of the developing natural gas market in Mexico, including operational and in-process projects, as well as where the U.S./Mexico import and export points are, check out NGI’s 2017 Map of Emerging Mexico Natural Gas Pipeline Infrastructure.