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New Capacity Driving Growth in U.S. Pipeline Exports to Mexico, Says EIA

U.S. natural gas pipeline exports to Mexico are on the ramp thanks to recent expansions to cross-border capacity, the Energy Information Administration (EIA) said Wednesday.

Citing data from Genscape Inc., EIA said pipeline exports to Mexico surpassed 5 Bcf/d for the first time during the month of July, with the growth spurred by the start-up of the Nueva Era and El Encinco-Topolobampo pipelines on the Mexican side of the border.

“By the end of 2018, an additional four of six major pipelines identified as strategic in Mexico’s five-year natural gas infrastructure expansion plan are scheduled to begin commercial operations,” EIA said in a research note.

EIA’s latest tally of Mexican imports of U.S. natural gas aligns with recent estimates from the Mexico Energy Ministry (Sener). Sener said total natural gas imports into Mexico averaged 5.15 Bcf/d in May, a 6.3% year/year (y/y) increase. This included a 3.5% y/y increase in pipeline shipments, which averaged 4.31 Bcf/d, mostly flowing across Mexico’s northeast border with South Texas.

EIA noted Wednesday that about three quarters of U.S. natural gas pipeline exports to Mexico are flowing out of South Texas, estimating the total volume at 3.3 Bcf/d for the first five months of this year, up from 3.2 Bcf/d in 2017.

“This natural gas is sourced primarily from” the Eagle Ford Shale “and transported on an existing pipeline network to serve industrial and power sector customers in northeastern Mexico,” EIA said.

Exports to Mexico from West Texas, home to a significant chunk of the Permian Basin, have been a different story, according to EIA, noting the ramp up in pipeline capacity to the border since 2015 that has gone largely unfilled.

“Exports from western Texas averaged only 0.4 Bcf/d in 2017 and 0.5 Bcf/d in January-May 2018,” the agency said. “Significant delays in construction of the connecting pipelines on the Mexican side of the border have led to relatively low utilization of cross-border pipeline capacity from western Texas. Some pipelines in Mexico have been delayed by more than a year from their original expected in-service dates, in part because of disputes contesting pipeline routes.”

That state affairs could be changing soon.

“Several key pipelines in Mexico were placed in service earlier in 2018. La Laguna-Aguascalientes (1.2 Bcf/d) and Villa de Reyes-Aguascalientes-Guadalajara (0.9 Bcf/d) are scheduled to begin commercial operations in November 2018 after the interconnect at El Encino-La Laguna is completed in October,” EIA said. “These pipelines will transport natural gas from western Texas into central and western Mexico through the Ojinaga-El Encino and Tarahumara pipelines.

“Natural gas from these pipelines may displace some imports of liquefied natural gas (LNG) at Manzanillo LNG terminal and will serve markets in Guadalajara, Mexico’s second largest city. Samalayuca-Sasabe (0.5 Bcf/d capacity) is scheduled to begin commercial operation in November and will primarily serve new natural gas-fired power plants in western Mexico.”

Meanwhile, around 3.0 Bcf/d of additional export capacity out of South Texas is expected to begin commercial operations later this year, according to EIA, including the 2.6 Bcf/d U.S. Valley Crossing pipeline designed to connect to Mexico’s Sur de Texas-Tuxpan underwater pipeline. Both of these projects are slated for service in October, the agency said.

“However, pipelines at the other end of this underwater pipeline have been delayed,” according to EIA. “The Tuxpan-Tula pipeline (0.9 Bcf/d), which connects Sur de Texas-Tuxpan to markets in central Mexico, is delayed and is not expected to begin commercial operation until 2020. Another pipeline near Mexico City -- Tula-Villa de Reyes (0.9 Bcf/d) -- has been delayed until 2019.

“Until these pipelines begin commercial operations, the high-demand market around Mexico City is expected to continue to be served by existing pipeline infrastructure transporting natural gas from southern Texas.”

Along with LNG, pipeline exports to Mexico have been a key driver behind growth in pipeline capacity to transport shale production into the U.S. South Central region, capacity that EIA recently said could reach 19 Bcf/d by the end of the year.

This comes as the transition to new leadership under Mexico’s President-elect Andres Manuel Lopez Obrador has created some uncertainty for a natural gas industry. Previous statements suggest the country’s likely next hydrocarbons secretary, Alberto Montoya, holds an unfavorable opinion of the reforms enacted under President Enrique Pena Nieto.

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