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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Can Mexico Absorb Texas’ Energy Glut?

Tex-Mex

While the United States, Mexico, and Canada are due to meet for a second round of NAFTA talks on Friday, the Texas Association of Business welcomes proposed U.S. legislation that would expand the ability of a development bank created under NAFTA to invest in energy projects along the border, seeing the Mexican market as an outlet for excess natural gas from Texas.  

In June, U.S. Senator John Cornyn (R-TX) introduced the North American Development Bank Improvement Act of 2017, which was aimed at boosting the ability of the North American Development Bank (NADB) to continue investing in international land border crossings, natural gas projects, and environmental infrastructure along the U.S.-Mexico border. The bill is currently referred to the Committee on Foreign Relations.

“Texas Association of Business and its NAFTA focused Texas-Mexico Trade Coalition believe that more investment in the NADBank could spur additional border infrastructure development across the state and the nation, and could help Texas energy companies provide more jobs,” Jeff Moseley, the CEO of the Texas Association of Business, wrote in the Houston Chronicle last week.  

The shale gas boom that has changed the U.S. and Texas’ energy landscape is sometimes forcing producers to burn off the excess, Moseley says, adding that “our neighbor to the South may be the perfect solution to our problem.”  

While Texas is pumping more oil and gas, Mexico’s domestic output has been declining, and the energy trade between the U.S. and its southern neighbor has significantly changed in recent years.

According to the EIA, historically, the energy trade has been driven by Mexico’s sales of crude oil to the United States and by U.S. net exports of refined petroleum products to Mexico.

The value of U.S. energy exports to Mexico, including rapidly growing volumes of both petroleum products and natural gas, exceeded the value of U.S. energy imports from Mexico in 2015 and 2016, as volumes of Mexican crude oil sold in the United States continued to drop. Last year, the value of U.S. energy exports to Mexico was US$20.2 billion, while the value of U.S. energy imports from Mexico was only US$8.7 billion, according to the EIA.

Related: Texas Oil Production Remains Strong…But For How Long?

On the other hand, Mexico’s oil and gas output is 40 percent off its peak levels, an S&P Global Platts report showed last week. Mexico’s crude oil output of 2 million bpd in June was far below the 2004 peak of 3.4 million bpd, while dry natural gas production is 3.2 Bcf/d this year, compared to a 2010 peak of 5.1 Bcf/d. Mexico, therefore, relies heavily on U.S. pipeline gas and LNG imports.

Mexico is also opening its refined products market to competition as it is unable to meet demand with its own production. Imports of U.S. petroleum products surged by 125 percent annually in the first four months of this year, S&P Global Platts said.

Currently, pipeline imports of U.S. natural gas account for almost 60 percent of Mexico’s natural gas supply, up from 22 percent in 2010. Imports of U.S. natural gas are expected to grow to nearly 70 percent of total supply by 2022, Platts Analytics estimates.

In this supply-demand situation, Texas oil and gas has a lot to gain from energy projects along and across the border. Last year, Texas exported US$93 billion in total goods and services to Mexico and another US$20 billion to Canada, Moseley said in comments about the NAFTA renegotiation objectives. “More than 387,000 jobs in Texas are supported by trade generated by NAFTA,” he noted.

So, additional investments and energy infrastructure projects would boost Texas’ position as an energy provider to Mexico.

By Tsvetana Paraskova for Oilprice.com

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