Natural gas demand in Mexico stayed resilient through pandemic-ravaged 2020 compared to total energy demand, in line with trends seen globally, according to BP plc.

Mexico’s natural gas consumption dipped only 1.9% year/year to 3.11 exajoules in 2020, while the country’s total primary energy consumption plunged 14.2% to 6.48 exajoules, according to BP’s Statistical Review of World Energy 2021.

The country’s natural gas production fell by 4.2% y/y to 30.1 Bcm. This is down 41% from 2010, when output totaled 51.2 Bcm.

[Survey Says: NGI editor Christopher Lenton and energy expert and columnist Eduardo Prud’homme dive into the results of NGI’s fifth survey of the Mexican natural gas market. What are active buyers and sellers telling us about what the industry needs? Tune in to NGI’s Hub & Flow podcast to find out.]

Mexico’s imports of liquefied natural gas (LNG) fell by 62.1% year/year (y/y) to 2.5 Bcm as imports from the United States via newly commissioned pipelines displaced LNG cargoes. 

Gas-fired power generation in Mexico fell by 2.5% y/y to 183.1 TWh. Gas accounted for 58.5% of Mexico’s power generation in 2020, versus 58.2% in 2019.

The BP analysis follows the International Energy Agency’s latest quarterly gas market report, which found that natural gas flows via pipeline from the United States to Mexico rose 15% y/y during the first half of 2021.

The country’s carbon dioxide emissions fell 19% y/y to 373.2 million metric tons in 2020, BP found.

Mexico’s production of crude oil and condensate stayed essentially flat at 1.7 million b/d.

Mexico’s oil exports, meanwhile, dipped 1.6% y/y to average 1.25 million b/d, researchers said. 

Covid-19 upended the energy markets last year, with natural gas proving to be resilient while renewables continued to surge, BP researchers said.

The 70th edition of the supermajor’s flagship annual report issued last Thursday revealed a global energy market that transformed in 2020 unlike any year in history. Primary energy and carbon emissions fell at their fastest rates in more than 75 years, the analysis indicated.

“Global energy demand is estimated to have fallen by 4.5% in 2020,” CEO Bernard Looney said. “This is the largest recession since the end of World War II, driven by an unprecedented collapse in oil demand, as the imposition of lockdowns around the world decimated transport-related demand…

“Natural gas showed greater resilience, helped primarily by continuing strong growth in China.”

Even with the discord in energy demand wrought by Covid-19, “wind and solar capacity increased by a colossal 238 GW last year — 50% larger than any previous expansion. Likewise, the share of wind and solar generation in the global power mix recorded its largest ever increase.”

BP’s chief economist Spencer Dale discussed the findings during a webinar in which an estimated 10,000 people participated worldwide.

“For the global energy system, the combination of the pandemic, together with efforts to mitigate its impact, led to developments and outturns unmatched in modern peacetime,” he said. The pandemic proved to be “the mother of all stress tests.”

Notably, last year’s energy demand loss was “surprisingly big. Even after controlling for the collapse in economic activity, the decline in energy demand was close to twice the size of the ‘predicted’ fall: 4.5% compared with a predicted fall of around 2.5%.”

Still, The United States remained the world’s largest oil and gas producer in 2020, accounting for almost 20% of the oil and nearly 24% of the gas output. 

Domestic liquefied natural gas (LNG) exports also jumped, rising 30% from 2019 and accounting for almost 13% of global trade.

In addition, the U.S. renewables market scored, with the domestic power mix now rivaling coal at nearly 20%. Solar generation grew the most, up 24%, with wind 14% higher.

Declines in gas demand were led by Russia, down 33 bcm, and in the United States, with consumption down 17 bcm, according to BP. In contrast, China gas consumption rose 22 bcm, while Iran’s demand was up 10 bcm.

Natural Gas Model ‘Bang-In-Line’

According to BP economists, global oil demand is estimated to have declined in 2020 by an unprecedented 9.3%, or 9.1 million b/d.  The decline “was far bigger than expected based on past relationships,” Dale said. “And the extent of that discrepancy was far greater than for any of the other demand components.”

The shortfall in natural gas, meanwhile, “was pretty much bang-in-line with the model prediction,” he said. And electricity consumption “actually fell by less than predicted.”

In comparison to oil consumption, natural gas use last year “showed far greater resilience.”

Global gas demand fell in 2020 by 2.3%, or 81 billion cubic meters (bcm), a “broadly similar decline to that seen in 2009 in the aftermath of the financial crisis.”

Gas consumption was down in most regions, except for China, where demand grew by almost 7% over 2019.

“The relative immunity of natural gas was helped by sharp falls in gas prices, which allowed gas generation to gain share in the U.S. power market and hold its own” in the European Union (EU), Dale said. 

Most of Dale’s remarks about the gas market were centered around Europe, where imports fell by more than 8% year/year. 

“The gas-on-gas competition in Europe takes the form of pipeline imports — predominantly from Russia — competing against LNG imports — largely from the U.S. as the marginal source of LNG,” Dale noted.

“As LNG imports have increased in recent years, it has raised the question of the extent to which Russia and other pipeline gas exporters will compete against LNG to maintain their market share or instead forgo some of that share to avoid driving prices too low.

“This issue could become more acute in a transition in which Europe moves away from natural gas and competition between different gas supplies intensifies.”

‘Last Producer Standing’

While there is a lot of “complicating detail,” Dale said “it appears that Russian exporters were prepared to forgo some market share last year. Pipeline imports from Russia as a share of European gas demand fell from 35% in 2019 to 31% in 2020, with much of the reduction happening in the first half of last year.”

Some of the decline in pipeline imports initially reflected the record storage levels that had built up toward the end of 2019, Dale noted. However, Russian gas volumes still remained low through 2Q2020, when the impact of the pandemic on European demand was at its peak.

“In contrast, LNG imports were up year/year in the first half of 2020, and their share of European demand for the year as a whole was broadly unchanged at 21%,” he said.

As to whether that signals future behavior of Russia’s pipeline exports, though, is less clear.

The decline in European gas demand “is expected to be relatively short-lived,” he noted. “It may be entirely rational for pipeline exporters to use their flexibility to reduce supply temporarily to help stabilize the market and support prices.

“But the possible response to a sustained and growing contraction in gas imports as Europe transitions away from fossil fuels could be very different, with a stronger incentive for Russian pipeline exporters to compete to be the last producer standing.”

One factor affecting the pipeline exports in 2020 was a “perception of how low European prices would need to fall to shut in LNG exports,” he said. 

Until 2020, the question was mostly hypothetical about what gas price it would take to shut in LNG exports. Shut-ins, said Dale, “had never really occurred at scale. That all changed last year.”

European LNG forward prices fell below operating costs, which “triggered a significant shut-in of U.S. LNG exports. Average utilization rates of U.S. LNG facilities began to fall in April last year, reaching a low of around 30-35% at the height of the summer.”

Still, Lower 49 LNG exports increased by around 30% last year, as additional trains came onstream. “But had it not been for the canceling of cargoes, the growth in U.S. exports would have been closer to 80%,” said Dale. 

With additional reporting by Andrew Baker