Volatility continued to rock the Mexican natural gas market this week as North American prices came under the influence of wildly unpredictable Asian and European fundamentals.
“Rallying, volatile U.S. benchmarks are creating anxiety in Mexico’s industrial sector, where gas demand is more correlated than ever,” Wood Mackenzie’s Ricardo Falcón told NGI’s Mexico GPI.
U.S. benchmarks key to Mexico bounced all over the place Monday through Thursday, but they were solidly above $5/MMBtu for another week.
“The more inelastic gas-fired power generation seems comparatively less reactive to U.S. price action,” Falcón added. However, “fears of another big shock as that of mid-February abound.”
During Winter Storm Uri in February, natural gas in Texas was impeded from reaching the market in Mexico. That sent prices into the stratosphere and shut down power plants. For a brief period, Texas Gov. Greg Abbott even forbade the sale of gas outside state lines.
Given this “level of stress,” the likelihood of having to resort to importing liquefied natural gas (LNG) to secure supply “is high,” Falcón said. “This puts price differentials in the spotlight.”
According to Wood Mackenzie data, natural gas imports from the United States were down 3% this month compared to last month. This trend is driven by lower power burns as temperatures ease. Still, “the high price environment is playing a role here, too,” Falcón said.
NGI’s 10-day average for U.S. imports into Mexico through Thursday was 5.97 Bcf/d. Overall U.S. pipeline exports to Mexico are expected to rise by 18% this winter year/year, the Natural Gas Supply Association said in its annual winter outlook released Thursday.
Underlying the increasingly global nature of the gas market, Mexican prices have lately been influenced almost more by what happens in Russia and China than by the market in Texas.
NatGasWeather warned of “dangerous trade” transpiring for natural gas “as geopolitical chess roils markets” around the globe. The firm said “until supplies in Europe show notable improvements, violent price swings are likely to continue.”
In an NGI podcast this week with Price Editor Leticia Gonzales and Associate Markets Editor Kevin Dobbs, Gonzales said generally, this is the time of year when prices are at their lowest. Instead, U.S. prices are at the highest level since 2014.
Gonzales said gas-to-coal switching has been “exhausted,” U.S. production isn’t responding to price signals and “global supply worries are really penetrating the U.S. gas market right now.”
Even so, U.S. prices, and by extension Mexico prices, are “still a big bargain to the prices in Asia and Europe.”
On Wednesday, spot prices in Asia were assessed at a record of nearly $60. British and Dutch futures fell about $3 each day/day to settle near $37, but they each touched intraday highs of roughly $55.
Mexico’s Sistrangas five-day line pack average was 6.933 Bcf/d on Wednesday (Oct. 6), in the sweet spot of the optimal line pack of 6.86-7.29 Bcf needed to guarantee sufficient pressure in the system.
On Wednesday, demand on the Sistrangas was 4.489 Bcf, versus 4.377 Bcf a week earlier. Mexico gas production fed into the Sistrangas fell week/week to 1.292 Bcf from 1.427 Bcf. The processing centers at Nuevo Pemex (358 MMcf), Burgos (300 MMcf) and Cactus (326 MMcf) were all down on the week and were the leading injection points.
According to Gadex calculations, pipeline imports from the United States into the Sistrangas were 3.234 Bcf on Wednesday, compared to 3.064 Bcf on Sept. 29. LNG imports into the Sistrangas were flat week/week at 7 MMcf.
In maintenance news, the San Luíz de la Paz regulation and measurement station will undergo cleaning from Oct. 18-22.
At points key to Mexico trades, November futures slumped on Wednesday. The Henry Hub November contract closed at $5.688, down 63.7 cents. Agua Dulce was down by 60.7 cents at $5.638, while Waha slipped 60.4 cents to close at $5.359.
Houston Ship Channel prices for November settled at $5.589, down 60.7 cents.
On Thursday, U.S. spot gas prices took another nosedive, sending NGI’s Spot Gas National Avg. down 27.5 cents to $5.440.
Tuxpan in Veracruz saw the spot price down by 29.3 cents on Wednesday to $6.272. In the West, the Guadalajara price fell 40.2 cents to $6.277. Farther north in El Encino, prices were $5.856, down 40.4 cents from the previous day.
On the Yucatán Peninsula, the cash price at Mérida was $6.930 on Wednesday, down by 29.1 cents.
U.S. Gas Injections
On Thursday, the U.S. Energy Information Administration (EIA) reported an injection of 118 Bcf into natural gas storage for the week ended Oct. 1. This was far above market expectations.
Bespoke Weather Services chief analyst Brian Lovern said the market is now on pace to reach the five-year average in terms of end-of-season storage levels.
The South Central region key to Mexico also saw healthy injections into stocks. It posted a robust 41 Bcf increase in storage, including 21 Bcf in nonsalt facilities and 20 Bcf in salts.
Total working gas in the South Central region stood at 1,054 Bcf for the reporting period, down from 1,319 Bcf for the same time one year ago. The figure was 50 Bcf lower than the average 1,085 Bcf in storage for the same day between 2017-2021, EIA said.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 2577-9966 | ISSN © 1532-1266 |