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North American Natural Gas Prices Continue Slump, with Further Volatility Seen – Mexico Spotlight
North American natural gas trading has been hijacked by bears, with prices moving lower this week on the back of a healthy supply and storage outlook.
The New York Mercantile Exchange (Nymex) futures contract for March is hovering around $2.500/MMBtu, its lowest point in almost two years. Last Friday (Jan. 27), the February Nymex natural gas futures contract rolled off the board at $3.109, closing the week down 2% after losing 7% the prior week.
At the Mexico Infrastructure Projects Forum in Monterrey last week, buyers of U.S. natural gas said they expected volatility to remain the name of the game. For example, buyers had expected elevated prices over the winter, only for the opposite to occur.
Frisa Steel’s Norma Rodriguez, natural gas purchaser for the Monterrey operations, said the challenge of managing week-on-week volatility kept her on her toes. “It’s a huge challenge. We try to hedge, but for smaller companies like us, we don’t have the financial infrastructure. And it’s hard to communicate to management why we need to secure a price for a year down the road.”
Although no major LNG facilities in North America are coming online this year, that will change in the years ahead with major export plants planned on the U.S. Gulf Coast and Mexico. “When these terminals open, it’s just going to add to volatility,” Rodriguez said. “Just look at Freeport.”
The 2.6 Bcf/d Freeport liquefied natural gas plant in Texas was knocked offline last June, and its closure had an immediate negative effect on pricing. Signs are that the plant is set to come back online shortly.
Ternium Mexico’s Gerardo Rojas, energy strategy developer for the steel producer, echoed the sentiment in Monterrey. He said, “there is worry that we are going to have to compete for natural gas with LNG. There is a lot of industrial demand on the horizon.”
Domestic pricing points in Mexico could take shape, he said, “but for that, we would need storage facilities.” Mexico has no natural gas storage facilities and imports about 80% of its gas via pipeline from the United States. “There are areas where pipelines converge in industrial zones, like Monterrey. That could be a pricing point.”
Mexican multinational Grupo Alfa SAB de CV’s Roberto Polanco, president of gas and power, said the prospect of domestic prices was brighter than it once was. “Why do we use the Houston Ship Channel in Mexico? Because it used to be” Petróleos Mexicanos or Pemex, which he said “had a monopoly and determined the reference price…There is more liquidity now. We could have a hub here in Monterrey, or in Villa de Reyes. What better than the price representing your zone?”
He said to manage volatility, “we diversify our sources of gas. And also, the transport service should be firm and not interruptible. With nominations both daily and monthly…This combined with weather models, helps us mitigate risk.”
He added that, “There is natural gas available. A ton. What we need is firm capacity. And long term. Without the threat of it being interrupted.”
While most natural gas is priced off of U.S. indexes, which are often far away, NGI’s Mexico GPI offers Mexico prices tied to local gas regions, as well as prices on the U.S.-Mexico border.
In Mexico on Wednesday, cash prices at Los Ramones fell 2.5 cents day/day to $2.785, according to NGI. Monterrey via the Mier-Monterrey system slipped 2.5 cents to $2.598. Tuxpan in Veracruz via Cenagas saw the spot price fall 2.3 cents to $3.251.
Out West, the Guadalajara price slipped 16.3 cents to $3.544 on Wednesday. Farther north in El Encino, prices via Tarahumara were $3.044, 30.4 cents lower than the previous day. On the Yucatán Peninsula, the cash price at Mérida was $4.116 on Wednesday, down 2.1 cents.
Demand on Mexico’s Sistrangas on Tuesday (Jan. 31) was 4.539 Bcf, up from 4.430 Bcf/d one day earlier. The power sector on Tuesday was the biggest user of natural gas on the Sistrangas at 1.428 Bcf. This was followed by Pemex (1.088 Bcf ) and the distribution segment (1.077 Bcf). Industrial end-users accounted for 946 MMcf of demand.
According to Gadex, natural gas pipeline imports from the United States into the Sistrangas were 3.148 Bcf as of Tuesday. The Sur de Texas-Tuxpan pipeline injected 635 MMcf into the system. LNG imports into the Sistrangas were 8 MMcf.
[Mexico Matters: Cross-border energy trade between the U.S. and Mexico reached $42 billion last year. Understand this burgeoning trade flow — the projects, politics and natural gas prices — with NGI’s Mexico Gas Price Index. Know more.]
On Thursday, the U.S. Energy Information Administration (EIA) reported 151 Bcf had been withdrawn from underground storage for the week ended Jan. 27. The print was on the higher end of expectations, but still low for this time of year.
The South Central region saw a withdrawal of 46 Bcf, EIA said. There was a 29 Bcf pull from nonsalts, and a 13 Bcf pull from salt facilities. Until Mexico develops storage capability, this is the storage system most readily available to the country.
For the week ended Jan. 27, total working gas in the South Central region stood at 1,025 Bcf, up from 851 Bcf for the same time one year ago. The figure was also 171 Bcf higher than the five-year average of 854 Bcf.
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