Widespread blackouts in Mexico earlier this week hit 21 states and sent the electric power system into emergency status – but the natural gas market was largely unimpeded.
Power system operator Cenace said the failures on Tuesday (May 7) were caused by soaring demand amid scorching temperatures. Some Cómision Federal de Electricidad (CFE) natural gas combined-cycle plants, including Altamira and Villa de Reyes, went offline because of load shedding as the reserve margin dropped below 3%.
Cenace officials called it an “atypical situation” with power demand hitting close to 50 GW. Operational alerts were also issued on Wednesday and Thursday with additional power outages reported.
Mexico President Andrés Manuel López Obrador said the blackouts happened because “heat was very intense across the country.” He said, “we are going to be keeping a close eye on this unusual situation…This was an exceptional situation that we didn’t foresee.”
Inflexible Power Sector
The rolling blackouts “put the reliability of Mexico’s power market again on the front burner,” Wood Mackenzie analyst Ricardo Falcón told NGI’s Mexico’s GPI. “The alerts issued by national grid operator Cenace in the past couple of days confirm that the interconnected system is not yet flexible and robust enough to tackle abrupt demand swings under abnormal weather conditions.”
He added, “instituting load shedding may be an onerous way of dealing with seasonality.”
Natural gas remains the fuel of choice in Mexico’s power generation fleet, with “current access levels and U.S. price incentives key factors behind this market reality,” Falcón said.
Imports of U.S. gas jumped about 400 MMcf/d day/day on Tuesday to 6.8 Bcf amid higher demand, “the same day numerous CFE units tripped.” This “reflects that, for the most part, the Mexican natural gas market was resilient and able to meet the short-term demand surges in spite of the temporary flow bottlenecks.
“The underlying concern is how this sector will face growing volatility and the technical costs and operating risks coming with it. In the big picture, persisting tightness in the supply/demand balance may further erode deliverability and chances for a sound long-term expansion of gas transportation and storage infrastructure,” Falcón said.
According to NGI calculations, imports rose again on Wednesday and hit 7.45 Bcf, the highest figure over the past 10 days.
“The increase in natural gas flows most likely indicates that the power plants are needing as much gas as possible to try and meet the cooling demand during the heatwave that Mexico is experiencing,” said NGI analyst Josiah Clinedinst.
Underinvestment
Mexican employers confederation Coparmex said the underlying issue was a lack of private sector investment in the power system during the López Obrador administration. “The authorities need to open dialogue over possibilities to attract more investment so that generation projects are completed,” Coparmex stated.
It warned of a risk of further blackouts, given that the traditional high demand season is still months away. “We are concerned about the unprecedented energy crisis the country is going through.
“We think the main problem is not the increase in energy demand, but the lack of new supply and power generation plants, coupled with the low investment in transmission and distribution. Mexico is losing the opportunity that nearshoring presents to attract new companies,” Coparmex said.
Nearshoring is the process by which international firms have been moving their operations to Mexico to be closer to their destination markets.
Mexico has focused its electric power buildout around natural gas-fired power plants, using mainly U.S. imports of the fuel. CFE has some 7 GW of combined-cycle power plants in development, but these projects have faced delays.
“It’s a huge deal,” independent consultant Santiago Villarreal told NGI’s Mexico GPI. He said the power system failures could have political implications for the ruling Morena party heading into next month’s elections. “The market has been saying for a long time there isn’t enough generation and transmission and distribution and now we have seen it is true.”
In terms of the natural gas market, some volumes might have been sent elsewhere on Tuesday evening, Villareal said. However, “there were no restrictions with Cenagas, and there were no constraints even if there would have been additional gas in the system.” Cenagas operates the national pipeline system, the Sistrangas.
Villarreal added natural gas prices didn’t show variation in Mexico as a result of the strain, but “we will see if some big consumers will be impacted by this.”
LNG Volumes
New Fortress Energy Inc. (NFE) management said this week it expects the floating liquefied natural gas platform offshore Altamira, Mexico to produce first volumes later this month after experiencing a mechanical issue in April.
During a quarterly earnings call, CFO Chris Guinta confirmed reports of a late April malfunction with the facility’s cold box that resulted in some minor injuries and released perlite used during system testing.
“The damage was isolated to one piping manifold within the box and is expected to be repaired by next weekend,” Guinta said. “This is why commissioning is so important and why we’ve invested in excellent partners that have been overwhelmingly supportive as we try to move through the balance of the commissioning work and produce LNG.”
Once the facility is operational, NFE expects to sell cargoes to existing customers in the Caribbean and South America.
Mexico Prices
North American natural gas prices in general have been going through a hot streak, with the New York Mercantile Exchange prompt month now well above $2.00/MMBtu.
In Mexico on Wednesday, natural gas cash prices at Los Ramones rose 7.7 cents day/day to $2.138, according to NGI data. Monterrey via the Mier-Monterrey system was up 7.6 cents to $1.942. Tuxpan in Veracruz via Cenagas saw the spot price rise 7.7 cents to $2.653.
Out West, the Guadalajara natural gas price jumped 22.1 cents to 96.2 cents on Wednesday. Farther north in El Encino, prices via Tarahumara were negative 38.8 cents, 26.9 cents higher than the previous day.
Permian Highway Pipeline maintenance work and an abundance of backed up associated gas continued to pressure West Texas prices on Wednesday, which supplies the west of Mexico. Waha recovered 36.5 cents on Wednesday but still averaged negative $2.305.
On the Yucatán Peninsula, the cash price at Mérida was $3.613 on Wednesday, up 7.6 cents.
U.S. Storage
On Thursday, the U.S. Energy Information Administration (EIA) reported a 79 Bcf injection into storage for the week ending May 3. The bullish figure sent prices higher.
The South Central region, close to Mexico pipelines, saw an injection of 14 Bcf that included a 14 Bcf injection into nonsalt storage and no change in salts, according to EIA.
For the week ended May 3, total working gas in the U.S. South Central region stood at 1,087 Bcf, up from 995 Bcf for the same time one year ago. The figure was 225 Bcf higher than the five-year average of 862 Bcf.
