The US is poised to become a major exporter of liquefied natural gas (LNG) in the coming years, with the first shipments leaving the Gulf Coast by the end of 2015.
Cheap natural gas has presented the US with an opportunity: natural gas is much more expensive in Europe and Asia, and thus, a huge market theoretically exists for US producers, if export terminals can be constructed. Cheniere Energy is nearing completion of the first. Related: Concerns Over Earthquakes Spread To Texas
But while Asia is the core of the export market, the US’ southern neighbor could turn out to be an unexpectedly strong consumer of American LNG, according to SNL Financial.
There are a few reasons for this. First, Mexico’s natural gas production is declining, resulting in a large and growing need for imported gas. Mexico has struggled to stem the decline in its oil and gas production over the past decade, which was the impetus to pass a historic energy reform law intended to attract international investment.
The second reason that strong LNG demand is likely from Mexico is the fact that the country’s power sector demand is growing.
That will leave Mexico hungry for American gas. And it won’t just be LNG that will be heading to Mexico. In fact, natural gas exports through pipelines are an even more attractive option. With prolific gas fields in Texas – the Barnett, Permian, and Eagle Ford shales – Mexico is in a prime position to capitalize on cheap natural gas.
Several companies are proposing new pipelines and expansions of existing ones, including a subsidiary of Howard Midstream Energy Partners LLC, Kinder Morgan, and Energy Transfer Partners. Related: One Of The Safest Bets In Oil & Gas Right Now
With Mexico a sure customer, US drillers see a growing market for their fuel, which couldn’t come at a better time. US natural gas prices are at multi-year lows. Record levels of production have rapidly restored depleted storage inventories, with the prospect of a glut looming in the second half of this year. Exporting to Mexico would offer a crucial lifeline.
On the other hand, natural gas prices have historically been highly volatile. And demand for US gas is expected to rise significantly over the next several years. American utilities are increasingly moving towards natural gas for power generation, and a growing number of consumers from around the world are also contracting out LNG cargoes. That could lead to higher prices as the pendulum swings back in the other direction. Related: This Merger Could Signal Big Changes In Nuclear Energy
Still, for now, Mexico appears set to import a lot more American natural gas in the near future.
By Charles Kennedy of Oilprice.com
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