Fueled by stubbornly mild weather and an improved supply outlook, North American natural gas prices fell more than $1 from Monday to Wednesday and closed in on the $4.00/MMBtu mark for the first time since early summer.

natural gas exports

Even as gas prices in Europe continue at record levels, the North American supply/demand and pricing picture has shifted decidedly in recent weeks. Lower 48 production continues to be on an upswing and averaged 94.3 Bcf/d in November, up 1.5 Bcf/d versus October. 

Analysts at BofA Global Commodity Research now expect Henry Hub gas prices to average $3.45/MMBtu in 2022, or about 75 cents below current forward prices for the upcoming winter months.

The lower prices are fueling higher power burns in Mexico, according to Wood Mackenzie analyst Ricardo Falcón. From Nov. 25 until Wednesday (Dec. 1), Mexico’s natural gas burns for power generation averaged nearly 3.7 Bcf/d, up about 300 MMcf/d over the previous week.  

This seems to be “reversing a downtrend that commenced in early September when U.S. benchmarks began to mark the strongest surges/volatility since February of this year,” Falcón told NGI’s Mexico GPI.

Overall Mexico imports of pipeline gas from the United States are off from summer highs, and averaged 5.33 Bcf/d over the past 10 days, according to NGI calculations.

Economic activity remained tempered in Mexico as the manufacturing sector is impacted by supply chain shortages. The Mexican economy shrunk 0.4% in the third quarter, according to the country’s Instituto Nacional de Estadística y Geografía (INEGI).

A Mexico City-based shipper told NGI’s Mexico GPI that industrial gas buying is being impacted by a slowdown in the manufacturing sector. He cited the lack of semiconductors impacting Mexican automaking and driving down demand for steel. 

All Eyes On Infrastructure

This week, executives at Mexican state utility Comisión Federal de Electricidad (CFE) and Canada’s TC Energy Corp. separately commented on multi-billion dollar natural gas pipeline projects going forward. This includes the extension of the 2.6 Bcf/d Sur de Texas-Tuxpan pipeline to the gas-starved Yucatán peninsula.

TC’s Stanley Chapman III, president for U.S. and Mexico natural gas pipelines, said “perhaps even more so than in the U.S., our business in Mexico is reinforced by strong fundamentals, which point to the need for additional midstream infrastructure.”

Meanwhile, Pembina Pipeline Corp. on Wednesday said it was abandoning plans to build the Jordan Cove liquefied natural gas (LNG) export project and related pipeline in Oregon, citing ongoing regulatory setbacks. This would leave only a handful of potential LNG export projects on the western coast of North America.

One of these, Sempra’s 3.25 million metric ton/year (mmty) Energía Costa Azul, is under construction in Mexico’s Baja California and set to go online in 2024. A proposed second phase would add 12 mmty of liquefaction capacity. There are three other potential liquefaction projects slated for Mexico.

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Pricing Fades

At points key to Mexico trades in South Texas, January futures were down across the board on Wednesday for a third straight day. The Henry Hub January contract closed at $4.278, down 30.9 cents day/day. 

Agua Dulce was down by 36.1 cents at $4.506. Houston Ship Channel prices for January settled at $4.456, down 36.2 cents. Waha fell 34.5 cents to close at $4.236.

In Mexico, NGI natural gas spot prices slipped in the northeast on Wednesday, with Los Ramones down 29.5 cents to $4.254. Monterrey was down 29.3 cents to $4.165.

Tuxpan in Veracruz saw the spot price down 29.1 cents to $4.747. In the West, the Guadalajara price fell 15.0 cents to $4.837. Farther north in El Encino, prices were $4.429, 15.3 cents lower than the previous day. On the Yucatán Peninsula, the cash price at Mérida was $5.367 on Wednesday, down by 28.6 cents.

Sistrangas

Mexico’s Sistrangas five-day line pack average was 6.683 Bcf on Wednesday (Dec. 1), 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 was 4.686 Bcf, down from 4.709 Bcf a day earlier. Mexico gas production fed into the system was 1.286 Bcf. Southeast production dominated the total, with 730 MMcf/d from the region injected into the pipeline system on Wednesday.

According to Gadex calculations, pipeline imports from the United States into the Sistrangas were 3.487 Bcf on Wednesday, down from 3.323 Bcf a week earlier. LNG imports into the Sistrangas were 8 MMcf/d, up from 7 MMcf last Wednesday.

U.S. Gas Injections

On Thursday, the U.S. Energy Information Administration (EIA) reported a 59 Bcf withdrawal from natural gas storage inventories for the week ending Nov. 26. The print was basically in line with market expectations.

The South Central region saw stocks fall by a net 12 Bcf, including a 3 Bcf decline in salt facilities and an 8 Bcf drop in nonsalts. Until Mexico develops its own storage capability, this is the storage system most readily available to the country.

For the week ended Nov. 26, total working gas in the South Central region stood at 1,185 Bcf, down from 1,324 Bcf for the same time one year ago. The figure was also 13 Bcf lower than the average 1,198 Bcf in storage for the same day between 2017-2021, EIA said.