MEXICO'S GAS DOWN
U.S. EIA - Dry natural gas production in Mexico has fallen 38% since 2012 because of declining reserves, a low price environment, and limited exploration and production of new wells. Mexico's dry natural gas production was 2.4 billion cubic feet per day (Bcf/d) in October 2018, according to Petróleos Mexicanos (PEMEX). This level is down 7% from year-ago levels, when production averaged 2.5 Bcf/d, and down 21% from two years ago, when production averaged 3.0 Bcf/d.
President-elect Andrés Manuel López Obrador from the National Regeneration Movement, a Social Democratic party, is set to take office on December 1. One of his initiatives is to reevaluate Mexico's current energy reforms, enacted in 2013 by the previous administration.
Because of declining production and increasing demand, Mexico has had to rely on natural gas imports—from the United States by pipelines and liquefied natural gas (LNG) shipments by vessel—to meet demand. EIA's data show that for the month of August, U.S. natural gas pipeline exports to Mexico grew 13% from year-ago levels as a result of several new pipeline projects that have entered service. U.S. pipeline exports to Mexico were 5.1 Bcf/d in August 2018 compared with 4.5 Bcf/d in August 2017. They comprised an average of 60% of Mexico's natural gas supplies in 2018 through August, compared with 58% for the entirety of 2017.
LNG imports are generally more expensive than pipeline natural gas imports because of the infrastructure required to liquefy and re-gasify natural gas and the relatively high transportation costs associated with using specialized LNG vessels. The President-elect has denounced the high cost of LNG.
LNG imports into Mexico are currently necessary to meet demand. The interior of Mexico relies primarily on LNG imports from the west coast's Manzanillo terminal until domestic pipelines connecting to pipeline supplies from the United States are placed in service. More specifically, Wahalajara, the pipeline corridor connecting Permian natural gas from the Waha hub in western Texas to the population centers of Mexico City and Guadalajara, is currently scheduled to be in service in May 2019, according to S&P Global Platts.
Before 2016, Mexico's LNG imports averaged 0.7 Bcf/d annually and did not include any U.S LNG imports. Mexico began receiving U.S. LNG in August 2016 after the first liquefaction facility in the Lower 48 was placed in service earlier in the year. Since then, LNG imports from the United States have been growing and currently account for 77% of the total Mexican LNG imports as of August 2018, up from 63% in 2017, based on data from EIA and Mexico's Secretaría de Economía. LNG imports in August 2018 totaled 0.86 Bcf/d, an increase compared with year-ago levels of 0.8 Bcf/d.
To transition from LNG imports to increased natural gas via pipeline, Mexico has made US $10 billion in capital investments in its natural gas pipeline infrastructure. It added 2,883 miles of pipeline since 2013, expanding the system by 41%. However, most domestic pipelines under construction have faced long delays. For example, on November 19, TransCanada Corporation announced it had halted construction on the Tuxpan-Tula and Tula-Villa de Reyes pipelines.
EIA's Annual Energy Outlook projects U.S. pipeline exports to Mexico to average 4.7 Bcf/d in 2018, 5.5 Bcf/d in 2019, and 6.0 Bcf/d in 2020.
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