North American natural gas prices moderated this week as temperatures remained warm and storage inventories continued to grow.

Mex imports

NGI natural gas prices at Monterrey and Los Ramones near the border with Texas dropped below $5.00/MMBtu for the first time in over a month. U.S. futures prices for November and December delivery also dipped in this week’s trading below the $5 mark.

Pipeline imports from the United States continued to be steady this week. The 10-day average level of pipeline imports was 6.01 Bcf/d through Thursday, according to NGI estimates. Imports from South Texas make up the bulk of this and were around 5 Bcf/d on Thursday, followed by West Texas at around 450 MMcf/d.

Looking ahead, more pricing volatility in Mexico is expected as the Northern Hemisphere winter approaches. 

A Federal Energy Regulatory Commission report sees a Henry Hub futures price of $5.63/MMBtu for November through February 2022, up 103% from the winter 2020-2021 settled futures price.

Production is still slowly picking up in the United States and is stagnant in Mexico, and supply worries are driving record prices in Europe and Asia. Total working gas in U.S. storage as of Oct. 15 stood at 3,461 Bcf, 151 Bcf below the five-year average, according to the Energy Information Agency (EIA). Mexico lacks natural gas storage.

This week saw the start of earnings season, and major oilfield sector companies are expecting production recoveries starting next year. North America exploration and production companies should increase their capital spending by 20% in 2022, Halliburton Co. CEO Jeff Miller said Tuesday.

Worrying Politics

Energy policy continues to worry market participants in Mexico. A source told NGI’s Mexico GPI that at least one potential shipper had decided to stop pursuing commercialization activities until there was more clarity on the proposed counter reform currently in the nation’s Congress.

“Everyone is taking a more cautious position,” the source said. “We’re moving back to the way things were two decades ago.”

An infrastructure developer told NGI’s Mexico GPI that the recent revocation of permits for storage terminals such as Monterra Energy LLC’s fuel terminal in Tuxpan was yet another sign of a poor working environment for the private sector.

With this as a backdrop, this week a bipartisan group of Texas legislators asked the Biden administration to intervene on behalf of U.S. energy companies operating in Mexico.

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Sistrangas

Mexico’s Sistrangas five-day line pack average was 6.918 Bcf/d on Wednesday (Oct. 20), in the sweet spot of the optimal line pack of 6.86-7.29 Bcf needed to guarantee sufficient pressure in the system.

Demand on the Sistrangas on Wednesday was 4.676 Bcf, up from 4.462 Bcf a week earlier. Mexico gas production fed into the system fell week/week to 1.285 Bcf from 1.324 Bcf. The processing centers at Nuevo Pemex (368 MMcf), Burgos (307 MMcf) and Cactus (314 MMcf) were the leading injection points.

According to Gadex calculations, pipeline imports from the United States into the Sistrangas were 3.403 Bcf on Wednesday, compared to 3.234 Bcf on Oct. 13. LNG imports into the Sistrangas were flat week/week at 7 MMcf.

Mexico Prices

At points key to Mexico trades, November futures rallied on Wednesday. The Henry Hub November contract closed at $5.188, up 8.2 cents. Agua Dulce was up by 10.7 cents at $5.128, while Waha rose 9.4 cents to close at $4.908.

Houston Ship Channel prices for November settled at $5.079, up 10.7 cents.

In Mexico, NGI natural gas spot prices were down significantly from a week earlier, but were up day/day. On Wednesday, prices rose in the northeast, with Los Ramones up 8.3 cents to $4.996. Monterrey rose 8.1 cents to $5.890.

Tuxpan in Veracruz saw the spot price up 8.3 cents to $5.499. In the West, the Guadalajara price rose 7.7 cents to $5.695. Farther north in El Encino, prices were $5.262, up 7.6 cents from the previous day.

On the Yucatán Peninsula, the cash price at Mérida was $6.170 on Wednesday, up by 8.7 cents.

U.S. Gas Injections

The EIA reported a 92 Bcf injection into natural gas storage for the week ending Oct. 15, coming in slightly above consensus but within the range of expectations.

The EIA’s 92 Bcf injection was the sixth in a row that exceeded the five-year average. The five-year average for the current week’s report period is a build of 69 Bcf, while the year-earlier period saw a net injection of 49 Bcf.

The South Central region, which is key to Mexico, injected 29 Bcf into stocks, including a 15 Bcf build in nonsalt facilities and a 14 Bcf build in salts.

Total working gas in the South Central region stood at 1,108 Bcf for the reporting period, down from 1,329 Bcf for the same time one year ago. The figure was 40 Bcf lower than the average 1,148 Bcf in storage for the same day between 2017-2021, EIA said.