The industrial area has various gas options and sees the Sistrangas national pipeline system converge with Kinder Morgan Inc.’s Mier-Monterrey system and Howard Energy Partners’ Nueva Era pipeline in Monterrey.
The area is also home to “the most sophisticated gas buyers,” in the country, said Gadex consultant Eduardo Prud’homme, one of the country’s energy experts.
Deliveries into the Monterrey area have increased by more than 30% in the past three years, rising from 583,182 Dth on March 16, 2018, to 772,468 Dth on March 16, 2021, according to NGI data.
The natural gas region 3, which encompasses Monterrey, as defined by Comision Reguladora de Energia’s (CRE) IPGN index, saw gas deals of more than 2 Bcf/d in January, the highest of any region in the country.
Kinder is also moving forward with the Mier-Monterrey Pipeline system expansion project. The $22 million project, expected to be in service in 3Q2021, would expand existing capacity by 35 MMcf/d. It is supported by long-term take-or-pay contracts.
A Mexico City-based trader told NGI’s Mexico GPI that one advantage of a local index is the opportunity to transact in Mexico pesos, eliminating foreign exchange risk.
Among the 23 participants who responded to the NGI survey, Monterrey was easily the most voted individual location, garnering 10 votes. Bajío and Reynosa were tied for second at four each.
Given Reynosa’s location, it is basically a South Texas/U.S. border point. However, “we believe Monterrey is enough inland and more detached from the U.S. pipeline grid, and therefore should trade more on its own local supply and demand fundamentals,” said NGI’s Patrick Rau, director of strategy and research.
Market participants have said indexes will develop once there is sufficient liquidity, market transparency and interconnections between all the pipeline systems. Development of local natural gas supplies would also spur indexes.
In general, market participants who responded to the survey are asking for indexes in the northern portion of Mexico, the area where more natural gas is consumed. Most of Mexico’s natural gas production, however, is focused on the Southeast, which only received 10.6% of the votes.
According to Santa Fe Gas LLC’s Santiago Garcia, who is CEO of the marketing affiliate of Fermaca, new infrastructure in the western part of the country could also spur indexes from the Waha Hub in West Texas down to Guadalajara.
The Santa Fe executive said during a conference earlier this year that as a result of gas flows from West Texas, he expected three indexes to develop within about five years along the Waha-to-Guadalajara system at Encino, Guadalajara and Villa de Reyes.
Mexico’s natural gas system operator Cenagas has also singled out four areas for natural gas hubs across Mexico: Leona Victoria in the Southeast, Las Adelitas in Reynosa, Dulces Nombres in Monterrey and Francisco Madero in La Laguna.
According to respondents to the latest NGI Mexico survey, 64% of gas bought and sold in Mexico is either done as a difference to a daily or monthly U.S. index, or is negotiated as a bidweek basis differential to the Henry Hub. That’s up significantly from the 40% to 47% range from the first three surveys held over the past two years.
However, as a result of the recent Texas energy crisis, where U.S. prices spiked to hit historic levels, some market participants in Mexico might change their methods and look to more localized price indicators in the months and years ahead.
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