U.S. natural gas futures facing Mexican buyers and sellers were a roller coaster this week as prices jumped early in the week as October rolled off the board followed by a dive on Wednesday when November took over as the front month.
“Markets are very, very nervy,” a Mexico City-based trader told NGI’s Mexico GPI. “We hope nothing extraordinary happens. Because in Mexico no one really has hedges to cover for extraordinary events.”
Analysts at EBW Analytics Group said “technicals and fundamentals indicate bearish momentum is likely to continue” for U.S. prices, which at the main benchmarks have been at or above the $5.00/MMBtu mark over the last month. A recent survey of oil and gas companies by the Federal Reserve Bank of Dallas was also bearish and the consensus was that commodity prices by year’s end would be lower than where they stand today.
This is in contrast to the rest of the world where prices can’t seem to find a ceiling on the back of soaring global demand for natural gas amid tight supplies.
In North Asia, Japan-Korea Marker (JKM) spot prices were assessed at an all-time high of $34.47 on Thursday, nearly $3.00 above Wednesday’s levels, while British and Dutch benchmarks now sit well above $30 and continue to set records.
[Trusted Transparency: Mexican buyers and sellers are basing their natural gas prices off of NGI’s Mexico Gas Price Index. Read the analysis of our fifth survey of active players in Mexico, showcasing market-driven insights now.]
The higher prices in Mexico were also having ripple effects across the economy. On Thursday, Mexico’s Central Bank raised interest rates for the third straight meeting, to 4.75%, citing inflation worries including higher energy and food prices. Officials now see Mexico inflation hitting 6.2% in the fourth quarter from a previous estimate of 5.7%.
A trader for a natural gas generator in Mexico City said power prices after initially lagging were also now reflecting the cost of natural gas.
Domestic natural gas production in Mexico meanwhile is unlikely to substitute for imported U.S. fuel and fell in the latest figures released by Comisión Nacional de Hidrocarburos (CNH). Mexico natural gas production averaged 3.81 Bcf/d in August, down from 3.86 Bcf/d in July and 3.91 Bcf/d in August 2020.
Gas imports from the United States are also dipping, as is typical for the shoulder season in Mexico. Flows into Mexico were 5.87 Bcf on Thursday and the 10-day average was 5.97 Bcf/d, according to NGI calculations.
Mexico’s Sistrangas five-day line pack average was 6.812 Bcf/d on Wednesday, just below the optimal line pack of 6.86-7.29 Bcf needed to guarantee sufficient pressure in the system.
Demand on the Sistrangas on Wednesday (Sept. 29) was 4.377 Bcf, basically flat compared with 4.385 Bcf a week earlier. Mexico gas production fed into the Sistrangas rose week/week to 1.427 Bcf on Wednesday from 1.368 Bcf. The processing centers at Nuevo Pemex (450 MMcf), Burgos (302 MMcf) and Cactus (354 MMcf) were all up on the week and were the leading injection points.
According to Gadex calculations, pipeline imports from the United States into the Sistrangas were 3.064 Bcf on Wednesday, compared to 3.067 Bcf on Sept. 22. Liquefied natural gas imports into the Sistrangas on Wednesday were flat week/week at 7 MMcf.
At points key to Mexico trades, November futures slumped on Wednesday. The Henry Hub October contract closed at $5.490 on Wednesday, down 40.3. Agua Dulce was down by 41.5 cents at $5.450, while Waha slipped 42.8 cents to close at $5.146.
Houston Ship Channel prices for October settled at $5.401, down 41.5 cents.
Tuxpan in Veracruz saw the spot price down by 20.8 cents on Wednesday to $6.280. In the West, the Guadalajara price fell 15.6 cents to $6.160. Farther north in El Encino, prices were $5.737, down 15.2 cents from the previous day.
On the Yucatán Peninsula, the cash price at Mérida was $6.942 on Wednesday, down by 21.7 cents.
U.S. Gas Injections
On Thursday, the U.S. Energy Information Administration (EIA) reported an injection of 88 Bcf into natural gas storage for the week ended Sept. 17, slightly above market expectations.
The South Central saw a storage increase of 23 Bcf, including a 12 Bcf injection into nonsalt facilities and an 11 Bcf build in salts.
Total working gas in the South Central region stood at 1,013 Bcf for the reporting period, down from 1,301 Bcf for the same time one year ago. The figure was also 72 Bcf lower than the average 1,085 Bcf in storage for the same day between 2017-2021, EIA said.
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