North American natural gas prices continued to be pressured lower toward the $3.00/MMBtu mark this week as U.S. production remained strong amid warmer than usual temperatures.

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On Thursday, the February New York Mercantile Exchange contract declined 3.6 cents day/day and settled at $3.275/MMBtu. Gas for delivery in March managed a 1.3-cent gain to $3.124.

Mexico natural gas imports of U.S. pipeline gas, meanwhile, were 4.866 Bcf on Thursday, according to NGI calculations based on public pipeline data. These figures do not include intrastate trades in Texas, which aren’t public, likely downplaying export figures. According to U.S. Energy Information (EIA) data, Mexico imports were about 1 Bcf/d above the NGI estimate.

Still, overall imports into Mexico recently have been down slightly amid rising domestic production. Kinder Morgan Inc. President Kim Dang said during an earnings call that softer natural gas exports to Mexico weighed on transportation volumes. 

Mexico Permian Offtake

Longer term, analysts see Mexico as a potential release valve for Permian gas output, which is growing at a faster pace than takeaway capacity can keep up with. Analysts at ClearView Energy Partners LLC think this trend will continue through 2023.

“In the coming years, additional Permian gas production and pipeline takeaway capacity to the Mexican border could be needed for Mexico’s ambitions of building numerous LNG facilities to come to fruition,” analysts said. The ClearView analysts said Permian-sourced gas in Mexico is already growing, rising from 2.4 Bcf/d in October 2021 to 2.5 Bcf/d in October 2022.

The ClearView analysts see up to 5.3 Bcf/d of liquefied natural gas export capacity coming online in Mexico. Most of the  gas would be sourced from the Permian Basin. 

How Is Gas Bought And Sold In Mexico?

The Waha Hub in West Texas is becoming an increasingly important pricing hub in Mexico gas trades, according to industry players consulted by NGI’s Mexico GPI. The pricing advantage helps. The spot price at the West Texas hub averaged $1.26 below Henry Hub in 2022.

“We are mainly now focusing on the Western part of Mexico, so Waha is the index,” a Houston-based seller of gas into Mexico said. “And we use a daily price. Our clients usually go with that.”

Houston Ship Channel (HSC) is used for the remainder of the transactions, the trader said. “If you have firm capacity on the Cenagas, you can choose. Some suppliers on the Cenagas allow clients to choose between daily pricing and monthly. But we just sell daily.”

The trader added that, “Currently, nobody is asking for fixed pricing, because volatility is so high. I don’t trade with generators yet, but the market is crazy with fluctuations, even on Houston Ship Channel so I don’t see fixed pricing.” He added that the market was “gaining dynamism.”

Another trader based in Mexico City said normally they have a portfolio of 80% monthly and 20% daily pricing. Nearly all (99%) of the trades are done off HSC. “This has to do mainly with where our clients are located.”

Natural gas is currently being bought at HSC plus 30 cents, the Mexico City trader said.

“There is growing interest in Waha with Mexico clients, but the problem is the infrastructure is a constraint.” The trader added that the Fermaca pipes feeding Mexico out of West Texas are “saturated” by the Comision Federal de Electricidad (CFE), limiting options.

A source at a state firm in Mexico added that their buying formula was “complex” and included a basket of indices on pipelines where they held firm capacity. 

[LatAm Energy Trends: From Mexico down to Argentina, from natural gas and LNG to crude oil and ESG, listen in as NGI’s Christopher Lenton and Rice University’s Francisco Monaldi discuss what to expect from the energy markets of Latin America in 2023. Tune into the Hub & Flow podcast now.]

Mexico Prices

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 in the industrial heart of Monterrey fell 9.2 cents day/day to $3.086, according to NGI. Monterrey via the Mier-Monterrey system slipped 9.0 cents to $2.896. Tuxpan in Veracruz via Cenagas saw the spot price fall 9.2 cents to $3.551. 

Out West, the Guadalajara price rose 18.1 cents to $3.614 on Wednesday. Farther north in El Encino, prices via Tarahumara were $2.917, 45.5 cents higher than the previous day. On the Yucatán Peninsula, the cash price at Mérida was $4.417 on Wednesday, down 9.1 cents.

Sistrangas

Demand on Mexico’s Sistrangas on Tuesday (Jan. 17) was 4.287 Bcf, up from 3.920 Bcf/d one day earlier. The power sector on Tuesday was the biggest user of natural gas on the Sistrangas at 1.230 Bcf. This was followed by Petróleos Mexicanos, or Pemex (1.064 Bcf ) and the distribution segment (1.061 Bcf). Industrial end-users accounted for 931 MMcf of demand.

According to Gadex, natural gas pipeline imports from the United States into the Sistrangas were 3.163 Bcf as of Tuesday. The Sur de Texas-Tuxpan pipeline injected 576 MMcf into the system. LNG imports into the Sistrangas were 9 MMcf.

U.S. Storage

On Thursday, the U.S. EIA withdrawal of 82 Bcf natural gas from underground storage for the week ended Jan. 13. The print exceeded expectations, but was still low for this time of year.

The South Central region increased by 2 Bcf. There was a 12 Bcf injection into salts, offset by a pull of 10 Bcf from nonsalt facilities.  Until Mexico develops storage capability, this is the storage system most readily available to the country.

For the week ended Jan. 13, total working gas in the South Central region stood at 1,069 Bcf, up from 1,029 Bcf for the same time one year ago. The figure was also 98 Bcf higher than the five-year average of 971 Bcf.