Gas exports to Mexico rise despite California price strength

Tuesday, June 12, 2012

Natural gas exports from the California and Southwest region to Mexico have risen by about a quarter so far this year from last, despite California having some of the highest spot gas market prices in North America, an analysis of volume and price data showed.

Outflows to Mexico from the California-Southwest region averaged about 404,880 Mcf/d from the beginning of 2012 through Tuesday, an increase of almost 25% from about 325,160 Mcf/d through the same period last year, according to data from Platts unit Bentek Energy.

Because Mexico's incremental supply would otherwise have come via liquefied natural gas facilities, "all other things being equal, you'd have to see [California-Southwest] prices rise $6 before LNG would be competitive with Southwest prices -- even in this relatively constrained market," said Anders Hyde, an energy analyst at Bentek. "This just emphasizes how much the US is an island in terms of global gas pricing."

Meanwhile, outbound flows from Texas to Mexico averaged about 632,740 Mcf/d through Tuesday, according to Bentek sample data. That was down about 2.5% from about 648,560 Mcf/d last year.

The sample data come from the pipeline meters Bentek can actually see, but not other sites where flow figures are unavailable. Bentek only sees exports from Texas on El Paso, Texas Eastern Transmission and Tennessee Gas pipelines. It no longer sees exports for Kinder Morgan Border, Kinder Morgan Texas and Oneok WesTex because of the federal court's vacating the Federal Energy Regulatory Commission's orders that required major non-interstate pipes to post daily flows .

Overall, Bentek estimates export capacity to Mexico at about 4 Bcf/d currently, and it expects Mexican gas demand to increase by 1.4 Bcf/d by 2017.

The Southwest's reliance on flows from Texas has become apparent this year amid the nuclear and hydro issues in California. Bentek's sample data show outbound flows from Texas to the Southwest averaging about 1.38 Bcf/d through Tuesday, up from 913,400 Mcf/d through the same time last year. That is an increase of around 50%.

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