North American natural gas prices charged ahead this week amid worries over longer term supplies. In Mexico, meanwhile, natural gas demand is growing despite the higher prices.
On Wednesday, the June New York Mercantile Exchange gas futures contract jumped 46.1 cents day/day and settled at $8.415/MMBtu. July rose 44.7 cents to $8.472.
“U.S. production underwhelming, tight U.S. supplies, and hot conditions across Texas and surrounding states this weekend into early next week are viewed as the primary drivers of spiking natural gas prices this week,” NatGasWeather said.
Mexico, meanwhile, continues to ramp up imports of natural gas as power demand rises with the hotter weather.
“Mexico’s gas burns for power generation are starting strong in May,” Wood Mackenzie analyst Ricardo Falcón told NGI’s Mexico GPI. So far this month, power burns in Mexico are above 4.4 Bcf/d, up around 7% month/month. This is “already robust when compared to the 6% average of the preceding seven years for the same month/month period.”
Power burns are driving pipeline imports from the United States, which are above 6 Bcf/d so far in May. NGI calculations had U.S. imports via pipeline into Mexico at 5.860 Bcf on Thursday. More than 75% of the gas arrived via South Texas.
“Wood Mackenzie believes that there is room for additional growth in May, especially if Mexican dry gas output stays at the current level,” Falcón said. Mexico dry gas production fell by 11% in April to slightly below 2.5 Bcf/d. This month dry gas output in Mexico has been largely flat.
Flat natural gas output across North America has been the general theme of ongoing earnings calls. Public exploration and production companies are set to shatter records this year in profits, but most of this money is being channeled back to shareholders, according to analysts at Rystad Energy.
“Despite the robust growth in cash from operations, investments are not expected to grow significantly this year, inching up to $286 billion from $258 billion in 2021,” the analysts said in a note.
In earnings calls, operators and midstream companies have added that demand isn’t being impacted despite the higher prices. U.S. natural gas transporter Williams CFO John Porter said this week that “it has been somewhat surprising to us how inelastic this demand has remained.”
A natural gas shipper in Mexico City told NGI’s Mexico City GPI that “everything is the same despite the higher prices. We’ve seen some clients lower their consumption a little bit, but motivated more by the lack of other raw materials in their processes and not because of the price of gas.”
Meanwhile, supply pressure in Europe continues to cast a shadow over energy markets. The European Union also appears on the verge of banning Russian oil imports, which could potentially lead to a reprisal from Russia, further squeezing the European natural gas market.
Mexico’s Sistrangas five-day line pack average rose this week, hitting 6.759 Bcf on Wednesday (May 4). This is still below the optimal line pack of 6.86-7.29 Bcf needed to guarantee sufficient pressure in the system. System operator Cenagas has advised users to maintain injections and withdrawals to their contractual quantities or risk facing penalties.
Demand on the Sistrangas on Wednesday was 4.658 Bcf, up from 4.562 Bcf a day earlier. Mexico gas production fed into the system was 1.277 Bcf, down from 1.312 Bcf a week earlier.
Southeast production dominated the total, with 712 MMcf from the region injected into the pipeline system, down 34 MMcf from the previous week.
According to calculations from the Gadex consultancy, pipeline imports from the United States into the Sistrangas were 3.395 Bcf on Wednesday, up from 3.291 Bcf a week earlier. Liquefied natural gas imports into the Sistrangas were 27 MMcf, up 5 MMcf week/week.
Mexico Cash Prices
In Mexico, NGI natural gas spot prices in the industrial northeast surged above $8.00 this week. On Wednesday, Los Ramones rose 43.0 cents to $8.796. Monterrey via the Mier-Monterrey system rose by 42.4 cents to $8.584.
Tuxpan in Veracruz via Cenagas saw the spot price rise 43.2 cents to $9.324.
In the West, the Guadalajara price shot up 92.0 cents to $9.200. Farther north in El Encino, prices via Tarahumara were $8.469, $1.406 higher than the previous day. On the Yucatán Peninsula, the cash price at Mérida was $10.028 on Wednesday, up 43.6 cents.
U.S. Gas Storage
On Thursday, the U.S. Energy Information Administration (EIA) reported an injection of 77 Bcf natural gas into storage for the week ended April 29. The print was seen as bearish compared to analyst expectations.
The South Central region led all regions with an injection of 40 Bcf, which included a 22 Bcf increase in nonsalt facilities and an 18 Bcf increase in salts, according to EIA. Until Mexico develops storage capability, this is the storage system most readily available to the country.
For the week ended April 29, total working gas in the South Central region stood at 721 Bcf, down from 833 Bcf for the same time one year ago. The figure was also 117 Bcf lower than the average 838 Bcf in storage for the same day between 2018-2022, EIA said.
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