More Mexican Nat Gas Pipelines To Ease Permian Constraints

The ongoing expansion of the U.S.-Mexico cross-border natural gas pipeline capacity provides an additional outlet for the constrained Permian production in West Texas, but delays in some projects on the Mexican side of the border have resulted in low utilization of cross-border pipeline capacity from West Texas, the EIA said in an analysis on Wednesday.

Thanks to the pipeline capacity expansion, U.S. natural gas pipeline exports to Mexico grew to 4.4 billion cubic feet per day (Bcf/d) between January and May 2018. In 2017, U.S. piped natural gas exports averaged 4.2 (Bcf/d), according to the EIA.

The United States is sending via pipelines record volumes of natural gas to Mexico, and although U.S. pipeline capacity to Mexico and exports have jumped in recent years, delays at some pipelines in Mexican territory have slowed the rise in U.S. piped natural gas exports. According to Thomson Reuters data, U.S. exports to Mexico have been at 4.9 billion cubic feet per day (Bcf/d) so far in August as demand for the power sector in Mexico rises.

The EIA estimates that by the end of this year, four out of six major Mexican pipelines identified as strategic are expected to start commercial operations. These pipelines are expected to carry U.S. natural gas farther into Mexico’s central and southern regions and provide an additional outlet for the Permian gas production which has been rising together with the crude oil production, the EIA said.

Currently, about three-quarters of U.S. natural gas pipeline exports to Mexico flow from South Texas—mostly from the Eagle Ford.

Yet, despite the jump in cross-border pipeline capacity in recent years, exports from West Texas have been limited.

“Significant delays in construction of the connecting pipelines on the Mexican side of the border have led to relatively low utilization of cross-border pipeline capacity from western Texas. Some pipelines in Mexico have been delayed by more than a year from their original expected in-service dates, in part because of disputes contesting pipeline routes,” said the EIA.

The pipelines put into service this year and expected to begin operations later in 2018 may displace some imports of liquefied natural gas (LNG) at the Manzanillo LNG terminal and will serve markets in Guadalajara, Mexico’s second-largest city. But until the pipelines that have been delayed to 2019 and 2020 start operations, “the high-demand market around Mexico City is expected to continue to be served by existing pipeline infrastructure transporting natural gas from southern Texas,” the EIA said.

By Tsvetana Paraskova for Oilprice.com

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