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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Why Mexico Got No Bids For This Key NatGas License Round

Mexico City

I’ve talked a lot the last few years about America’s increasing natural gas exports to Mexico. With outgoing pipeline shipments from America’s shale plays having more than doubled over the last 18 months. 

But one development this week shows that U.S.-Mexico natgas trade still has some snags to be worked out — before it can contribute further as a source of demand growth in American markets. 

Mexico’s National Gas Control Center (CENAGAS) announced Tuesday that it received no bidders for a key auction of cross-border pipeline capacity. With the group having to take the extreme step of nullifying the pipeline bid round, and planning a complete re-issue of the tender later this summer. 

Under the auction, CENAGAS had been making available 2.2 billion cubic feet per day of capacity on existing pipelines that cross from the U.S. into northern Mexico. With the idea being that private companies would use this pipeline space to import contracted volumes of natgas from U.S. producers. 

As the chart below shows, that’s generally been a popular move of late. But end users in Mexico said the latest auction of pipeline capacity has a problem — it’s in the wrong place.

(Click to enlarge)

U.S. natgas exports to Mexico have been surging since 2015

Users noted that most of the pipeline space being offered by CENAGAS is in central Chihuahua state. Where most of the connecting pipeline network needed to get gas to markets in Mexico is in eastern Nuevo Leon and Tamaulipas states. 

That mismatch led buyers to completely avoid this latest CENAGAS capacity auction. With users saying they would rather see the Mexican government offer space on better-positioned pipelines owned by state firm Pemex. 

All of which points to a developing issue in infrastructure — namely, cross-border pipelines between Mexico and America are fine, but the network on the Mexican side still needs a lot of development to move gas to market.

There are a number of pipeline projects on the books to improve that situation — but progress has reportedly been slow. Watch to see if Mexican authorities can come up with any solutions when the pipeline tender is reissued, expected August 10. 

Here’s to de-bottlenecking.

By Dave Forest

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