U.S. exports of natural gas to Mexico will grow as the country’s production fails to keep pace with demand and new pipelines on both sides of the border relieve transport constraints. However, Mexico eventually could come to rely on supply from its share of the Eagle Ford Shale, and U.S. gas could find higher prices overseas through liquefaction and export, Goldman Sachs said last Friday.

“…[A]ssuming all the pipeline projects start on schedule, we expect U.S. exports to Mexico to grow by 0.4 Bcf/d year over year in 2013 and 0.6 Bcf/d year over year in 2014, compared to a growth rate of 0.3 Bcf/d year over year in 2012,” Goldman analysts said in a note. Multiple pipeline projects on the U.S. side of the border gathered pace late last year, the analysts noted.

“Kinder Morgan is the dominant company on the U.S. side of the border via the El Paso system,” Goldman said. Its projects intended to serve Mexico are the Willcox Lateral expansion in Arizona, which is in construction for expected April completion; the Samalayuca Lateral in West Texas, approved and expected to be completed in July; the Norte Crossing project in Arizona, planned and expected to be completed in July; and the Willcox Lateral II expansion, planned for completion in January 2014, according to Goldman. Also on Kinder Morgan’s slate is the Sierrita Pipeline in Arizona (formerly called the Sasabe Pipeline) with completion planned for late 2014.

Spectra’s Texas Eastern Transmission’s South Texas Expansion is planned to be completed in July 2014, according to Goldman. Combined, 2013 net capacity additions for U.S. exports to Mexico are 651 MMcf/d; in 2014 capacity additions are 1.2 Bcf/d, the analysts said.

“In Mexico, several large scale pipeline projects are under way, three of which are directly aiming at increasing imports from the United States,” Goldman said. The three pipelines are Fermaca’s Chihuahua Pipeline; the Los Ramones Pipeline, the first phase of which is a Sempra Energy/Petroleos Mexicanos (Pemex) project; and four phases of the Northwest Pipeline, two to be constructed by Sempra and two by TransCanada (see NGI, Nov. 5, 2012).

“We expect these three pipelines to increase capacity to move U.S. gas further into Mexico by 0.9 Bcf/d in 2013 and 2.9 Bcf/d in 2014…[T]he 2014 expansions are all scheduled for very late in the year and will likely only ramp up gradually, with additional stages being completed through 2016.” The second phase of Los Ramones is not expected to be online until 2015, and the last three phases of the Northwest Pipeline are not planned for start-up until 2016, according to Goldman.

“Beyond 2014, the ramp-up of Los Ramones and the Northwest Pipeline system should allow for strong annual growth rates in U.S. exports to Mexico, in particular after 2016 when these pipelines should be fully completed,” the Goldman note said. “However, by this time two other major developments could potentially change the overall market backdrop.”

For one, Mexico could begin tapping its shale gas resources, particularly the Eagle Ford Shale, which it shares with South Texas. Goldman cited Energy Information Administration statistics that said Mexico has 681 Tcf of technically recoverable shale gas resources, nearly 500 Tcf of which are attributable to the Mexican side of the Eagle Ford Shale. “Investment in this resource is starting to materialize, with Pemex announcing a shale exploration program in September 2012,” Goldman said.

“…[W]e view meaningful Eagle Ford production in Mexico as being likely up to three years into the future. However, eventually domestic shale gas production could limit or even reverse the dependency on pipeline imports from the United States.”Secondly, U.S. gas will likely be getting an outlet to global markets around 2018 via at least some of the numerous liquefaction and export projects now planned, Goldman said.

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