North American natural gas futures have been on a hot streak these past two weeks as warmer temperatures and tighter supplies provided market bulls with some optimism.
Bucking the trend on Thursday, the New York Mercantile Exchange June contract settled at $2.657/MMBtu, down 18.5 cents day/day.
Mexico imports of U.S. gas have, meanwhile, continued to be strong, averaging 7.28 Bcf/d over the past 10 days, according to NGI calculations. So far in May, Mexico has imported 7.27 Bcf/d via pipeline, a full 1 Bcf/d higher than during the month of May 2023.
“The hot weather in Mexico is pushing the Mexico electrical grid to the limit, which runs mostly on natural gas power plants, which without the increased demand from cooling systems throughout the country, already runs under stress,” said NGI markets analyst Josiah Clinedinst.
“The unreliability of the electrical grid alone is holding back Mexico's economic growth. Increasing electrical output and grid reliability should be a top priority for the next administration to alleviate brownouts and blackouts,” he said.
Cenagas Plans
Mexico’s Cenagas, which manages and operates the national pipeline system known as the Sistrangas, has announced plans to strengthen the natural gas system amid this increasing demand.
Speaking at the Mexico Gas Summit in San Antonio, TX, last week, Cenagas chief Abraham Alipi underlined the importance of natural gas to Mexico’s economy.
Alipi highlighted that the industrial segment accounted for more than 30% of Mexico’s gross domestic product, and more than 60% of the industry used natural gas in productive processes. Around 64% (5.126 Bcf/d) of Mexico’s natural gas flows ran through the Cenagas system.
Cenagas, Alipi said, had 10 projects underway or in development designed to bolster the country’s infrastructure.
The independent system manager planned to hire small scale liquefied natural gas companies to manage peak shaving and provide a supply buffer, Alipi said.
Cenagas was also working on real time measurement of flows at Pajaritos in southern Mexico through infrastructure upgrades. They would also increase pressure conditions at Minatitlán to help provide consistent supply to the fertilizer plant at Cosoleacaque.
Cenagas plans to build the Libramiento Reynosa pipeline, a 24-inch diameter line from the Sistrangas to Reynosa in Tamaulipas. Compressor stations in Veracruz and Michoacan were undergoing upgrades. This would include the reconfiguration of Cempoala so that flows could move to both the north and south of the country.
Alipi said Cenagas was also involved in a general maintenance program on 3,340 km (2,075 miles) of pipelines, or 38% of the system, which had suffered from fatigue and deterioration.
Perhaps the biggest news was Alipi’s announcement that Cenagas would tender the Jaf field as an underground storage facility. The depleted Jaf dry gas field in Veracruz in a first phase could hold a potential 11 Bcf of gas, or equivalent to a little more than one day of demand.
Jaf could also be used to supply gas to the country’ south and southeast through virtual pipelines, Alipi said.
Nearshoring Boom, Energy Strain
Increased natural gas demand is being driven by nearshoring, or the process by which global firms are moving their operations to Mexico to be closer to the United States.
Chief economist Alejandro Padilla of Grupo Financiero Banorte said during the summit that the total impact of nearshoring in Mexico could be worth $168 billion to the economy over the next five years. “Investment has accelerated substantially in the last couple of months,” he said.
The central region of Mexico also is experiencing growth in industrial activity and construction.
The state of Querétaro near capital Mexico City is emerging as a data center hub, with 527 MW of installed capacity already feeding these facilities. “For the first time a state outside of Canada and the United States is becoming a jumping off point for this sector,” said Mauricio Reyes of the state’s energy agency.
Mexico Prices
In Mexico on Wednesday, natural gas cash prices at Los Ramones fell by 1.0 cent day/day to $2.602, according to NGI data. Monterrey via the Mier-Monterrey system was down 1.0 cent to $2.397. Tuxpan in Veracruz via Cenagas saw the spot price fall 1.2 cents to $3.245.
Out West, the Guadalajara natural gas price rose 5.9 cents to $2.450 cents on Wednesday. Farther north in El Encino, prices via Tarahumara were 91.6 cents, 12.9 cents higher than the previous day.
On the Yucatán Peninsula, the cash price at Mérida was $4.101 on Wednesday, down 1.1 cents.
U.S. Storage
On Thursday, the U.S. Energy Information Administration (EIA) reported a 78 Bcf injection into storage for the week ending May 17. The figure sent prices lower.
The South Central region, close to Mexico pipelines, saw a build of 15 Bcf that included a 9 Bcf increase in nonsalt stocks and a bump of 6 Bcf in salts. EIA noted that totals do not always add up because of independent rounding.
For the week ended May 17, total working gas in the U.S. South Central region stood at 1,112 Bcf, up from 1,037 Bcf for the same time one year ago. The figure was 195 Bcf higher than the five-year average of 917 Bcf.
