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Dave Forest

Dave Forest

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

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Did This Event Just Call a Buy on Natural Gas?

The full approval of the largest proposed U.S.-Mexico gas export pipeline.

This news came last week from the U.S. Federal Energy Regulatory Commission (FERC). Who granted a full presidential permit to the NET Mexico pipeline project.

The proposed pipe is by far the largest export project on the books. At 2.1 billion cubic feet per day of planned capacity. That's more gas-moving capability than all other U.S. export pipeline projects combined.

The new FERC permit gives project developers NET Mexico Pipeline Partners permission to "site, construct, connect, operate, and maintain a border-crossing facility" in south Texas. The firm last week awarded the construction contract for the 120 mile pipeline that will carry gas from the Eagle Ford shale basin to the border.

Completion of the project is expected in October 2014.

The green-lighting of this massive project is very significant. Especially in light of recent murmurings from U.S. industry groups relying on cheap domestic natgas supply. Just last week Carlyle Group CEO William Conway Jr. told a conference in Detroit that the "rebirth of American manufacturing" depends on low natgas prices.

But U.S. regulators are sending a firm signal that business opportunities come before any national energy agendas. It appears that natgas exports to Mexico will go ahead, despite opposition.

To be sure, the 2.1 bcf/d exports on the NET Mexico line aren't going to send natgas prices through the roof. But combined with other proposed projects, exports to Mexico could amount to 7 bcf/d. Equating to 10% of current U.S. production.

That marginal demand would be enough to support pricing. Events like this approval thus suggest that even if prices don't surge, they're unlikely to head much lower.

There are still some questions to be answered about Mexican gas shipments. Namely, how fast pipeline connections on the Mexican side will become operational.

But it appears that the momentum is now firmly behind growing exports. And stronger prices.

Here's to running for the border,

By. Dave Forest


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