Mexican businessmen and officials expressed concern on Thursday over the potential natural gas supply and pricing impacts of Russia’s military strike on Ukraine.

“We aren’t in favor of any war,” Mexico President Andrés Manuel López Obrador said Thursday. “Mexico has always been in favor of peace.” 

He added that Mexico had a plan in place in the event that natural gas supplies were limited. “We can run all our generation plants that don’t need natural gas, to avoid the rising cost of electric power. We already have a plan of action.”

An executive at a major gas distributor in Mexico, meanwhile, said he was “concerned that we could see a huge price disruption.”

Overblown Concerns?

However, those worries appeared to be overblown. On Thursday, the March New York Mercantile exchange natural gas futures contract approached $5.00/MMBtu, up more than 30 cents early Thursday, before giving back much of the gains. The contract settled at $4.568, up 5.5 cents on the day.

This is in comparison to Europe, where the Dutch Title Transfer Facility’s March contract gained almost $15 to finish close to $44. The prompt TTF hit an intraday high of $47.23, notching the largest single-day surge on record.

“It’s very premature to talk about impacts on Mexico,” a Mexico City-based trader told NGI’s Mexico GPI. “But of course, any conflict like this will impact the cost of energy.”

Analysts said several factors shielded North American prices from the European crisis. For one, U.S. exports of liquified natural gas (LNG) are already running near record levels to help meet European demand. Additionally, although U.S. natural gas production dropped this week, it has been on a gradual upswing since the doldrums of the coronavirus. Finally, the high-demand period of the North American winter is nearing an end.

Moreover, President Biden said on Thursday energy would be exempted from sanctions imposed on Russia, beyond those previously announced on the Nord Stream 2 natural gas pipeline.

Flows across the U.S. border to Mexico are continuing as normal. Mexico imported 5.54 Bcf on Thursday via pipeline from the United States, and the 10-day import average is 5.21 Bcf/d, according to NGI calculations.

“I don’t see a sudden interruption in natural gas supplies in Mexico,” Gadex consultant Eduardo Prud’homme told NGI’s Mexico GPI. “But in the medium and longer term there could be a tradeoff between intermediaries who will pick between pipelines or LNG.”

A prolonged conflict in Europe could bolster North American brownfield LNG site expansions and possibly help greenfield LNG projects to reach final investment decisions or land financing, Evercore ISI analysts said in a recent analysis. 

Prud’homme noted the crisis “could longer term push up prices” and Mexico needs to get rid of the idea of “very cheap gas” because “as an importer we need to compete with other markets.”

Mexico Prices

In Mexico, natural gas prices were up across the board this week. NGI natural gas spot prices rose in the Northeast on Wednesday, with Los Ramones up 13.4 cents to $4.840. Monterrey via the Mier-Monterrey system was up 13.1 cents to $4.639.

Tuxpan in Veracruz via Cenagas saw the spot price up 13.4 cents to $5.368. In the West, the Guadalajara price was up 7.6 cents to $5.527. Farther north in El Encino, prices via Tarahumara were $5.079, 15.0 cents higher than the previous day. On the Yucatán Peninsula, the cash price at Mérida was $6.072 on Wednesday, up 13.7 cents.

Sistrangas

Mexico’s Sistrangas five-day line pack average was 6.641 Bcf on Wednesday (Feb. 23), 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 4.644 Bcf, up from 4.560 Bcf a day earlier. Mexico gas production fed into the system was 1.276 Bcf, basically flat from a week earlier.

Southeast production dominated the total, with 719 MMcf/d from the region injected into the pipeline system. 

According to calculations from the Gadex consultancy, pipeline imports from the United States into the Sistrangas were 3.335 Bcf on Wednesday. LNG imports into the Sistrangas were 8 MMcf.

U.S. Gas Injections

On Thursday, the U.S. Energy Information Administration (EIA) reported a drop of 129 Bcf for the week ending Feb. 18, a slightly lighter pull than expected.

The South Central region posted a withdrawal of 34 Bcf. This included a 29 Bcf draw from nonsalt facilities and a 5 Bcf pull from salts, according to EIA. Until Mexico develops storage capability, this is the storage system most readily available to the country.

For the week ending Feb. 18, total working gas in the South Central region stood at 655 Bcf, down from 692 Bcf for the same time one year ago. The figure was also 92 Bcf lower than the average 747 Bcf in storage for the same day between 2018-2022, EIA said.