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U.S. Seen Supporting 30% of Mexican Gas Demand Growth Through 2017

By 2016, 3.5 Bcf/d of new incremental U.S. pipeline capacity to Mexico will join another 1.9 Bcf/d of currently underutilized capacity, making for 5.4 Bcf/d of potential new U.S. exports of gas to Mexico, assuming pipeline development south of the border is able to keep up, Raymond James & Associates Inc. said in a note Monday.

"That is a potentially huge amount of natural gas leaving the U.S. market," the firm said. "...[A]s long as Mexico executes on its extensive pipeline expansion plans, pipeline infrastructure does not seem to be an obstacle to natural gas export growth on either side of the border."

And natural gas demand growth in Mexico is being driven by multiple factors, Raymond James said. Gas production has languished since 2007 as the Mexican government focuses on growing oil production. Mexico's gross domestic product is projected to grow at a compound annual rate of 6% through 2018, supporting residential and commercial power demand. And industrial demand in Mexico is picking up as manufacturers relocate from Asia, Raymond James said.

Mexico is shifting to natural gas for power generation in concert with greater reliance on renewables (see Daily GPI, Aug. 20). "This has been evidenced in the growing share of natural gas consumption by the electricity industry, which increased from 29% in 2000 to 48% in 2009," Raymond James said.

Back on the U.S. side of the border, multiple pipeline projects are planned or under way. The big one is the 2.1 Bcf/d NET Mexico pipeline by privately held U.S. company NET Midstream, analysts said. It is planned to source Eagle Ford Shale from the Agua Dulce Hub in Nueces County, TX, to a point near Rio Grande City, TX, in Starr County. The pipeline could enter service in December 2014 (see Daily GPI, Feb. 25).

In May, Net Midstream said its Eagle Ford Midstream LP struck agreements to transport Eagle Ford gas produced by Talisman Energy USA and Statoil Natural Gas LLC. The system takes pipeline-quality gas from the Brasada Processing Plant in LaSalle County, TX, to the Agua Dulce Hub. The system also has a commitment from Anadarko Energy Services.

The Eagle Ford Shale can also be found in Mexico, and its development there could create pushback to gas from the United States, especially if Mexico reforms its energy industry to allow greater participation from outsiders (see Shale Daily, Aug. 20). However, Raymond James doesn't see that as likely, at least not in the near term. "...[T]he best case scenario, it would be a long, drawn-out process," the firm said, adding that this issue will be a topic of its research note next Monday.

Indeed, speaking in Houston recently, Ken Medlock, senior director for the Center for Energy Studies at Rice University's Baker Institute, said, "Companies that operate currently in the Eagle Ford are extremely reticent to invest south of the border, even if the reforms pass," as reported by the Houston Chronicle.

Recently, Barclays Commodities Research said net U.S. exports of gas to Mexico, about 2 Bcf/d this year, will climb to 2.3 Bcf/d next year. But in 2015, they will jump to 3.5 Bcf/d when new pipeline capacity comes online (see Daily GPI, Oct. 4).

This adds up to a continually growing role for U.S. gas in growing Mexico's economy. Raymond James said U.S. exports of gas could grow 15-25%, or by about 0.25-0.50 Bcf/d, every year for the next five years. "This means that U.S. gas producers would account for about 30% of total Mexican natural gas demand growth through 2017."

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