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Dave Forest

Dave Forest

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

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This Major Natgas Development Is Moving Quickly

I wrote a few weeks back about U.S. exports of natural gas to Mexico. And how they could be the major driver pushing North American natgas prices higher.

That movement gained a little more strength this week.

Export project developers NET Midstream announced they have secured bank financing for their NET Mexico project.

A consortium of banks led by Mitsubishi UFJ Financial Group will lend $665 million to the project. The cash will be used to build the 120 mile pipeline from the Eagle Ford natgas basin in Texas to the Mexican border.

This is potentially one of the most significant developments in North American natural gas markets for some time. The NET Mexico pipeline is by far the largest Mexican export project currently on the books. With a planned capacity of 2.1 billion cubic feet per day.

This alone could start sending a few percent of overall U.S. natgas output south of the border. Combined with other planned pipelines, we could see up to 7 billion cubic feet per day--or some 10% of U.S. production--being shipped to Mexico.

And we won't have to wait long for it to happen. This week's financing is the second big announcement for the NET Mexico project in as many months. In November, the pipeline was granted full presidential approval by the Federal Energy Regulatory Commission.

The company also announced this week that procurement of all major pipeline and compression equipment for the project has been completed. Meaning that the development appears to be on schedule to meet its planned commissioning date of late 2014.

This could be one of the most critical factors affecting natural gas prices during the coming year. If exports on the order of several Bcf per day do materialize, it will put significant upward pressure on U.S. prices. Especially in southern plays like the Eagle Ford.

Might be time to start thinking about long positions in this space.

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Here's to laying pipe,

By. Dave Forest


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