Sometimes geography just works.
That’s certainly the case in North American natural gas markets today.
To the north you have America—a new natural gas superpower. So super that producers have cratered prices for their product amid a wash of new supply coming on from shale plays around the country.
And to the south there’s Mexico. The “lazy cousin” whose petroleum industry has squandered its cash (or had the cash squandered for it by the wider federal government). To the point where a lack of reinvestment in producing infrastructure has cratered production by 15% since 2008. At a time when politicians are desperate to move away from expensive oil-fired generation for electricity.
Sounds like a match made in Business School 101. The obvious solution to both problems being a few short miles of pipeline to redirect ample U.S. gas supplies south, and ample Mexican gas prices north.
But this is far from just a satisfying economics exercise. If U.S. natgas exports to Mexico can indeed be achieved at scale, it could represent one of the biggest investible opportunities of the decade.
“At scale” is exactly the plan right now. At least six new or expanded export projects are on the books, with capacity to send an additional 3.5 billion cubic feet per day of gas to Mexico. Doubling current export capacity.
These added flows could bring total US-Mexico exports to several billion cubic feet per day. Eating up 5 to 10% of total U.S. gas production. That’s a slug of new demand big enough to push prices higher quickly. Which would crate investment opportunities in both the commodity itself, and the shares of U.S. gas producers who would see profits soar.
It will thus pay to know if and when the Mexican export boom is going down. Which means watching a few key indicators—boxes that if ticked will tell us it’s time to go long gas and the U.S. E&P sector.
Below are four critical issues that will shape the fate of U.S.-to-Mexico gas trade—and signal when the time is right for this mega-trade.
Regulators approving export pipelines
One of the major questions around exports is the permitting process. Several new U.S. pipelines are needed to move gas to the Mexcian border for export—and those developments require regulatory approval. A step that is proving challenging for other export outlets like LNG.
But just last month,…