Viewpoint: Mexico reliance on US gas to strengthen

Spanish Market: Electricity, Natural gas
03/01/22

Mexico's demand for US natural gas grew to a record high in 2021, with imports expected to grow in 2022 despite political uncertainty.

Even as President Andres Manuel Lopez Obrador calls for energy independence, Mexico remains heavily reliant on gas imports for power generation, most of which comes into the country via US pipeline interconnections. Gas imports from the US made up 76pc of Mexico's supplies by the middle of 2021, according to the US Energy Information Administration (EIA), a 36 percentage point increase from the same time in 2015.

US exports by pipeline to Mexico averaged around 6 Bcf/d (170mn m³) in January-August, according to EIA data, 12pc higher than the same eight months in 2020. Pipeline exports reached a peak of 7.4 Bcf/d on 17 June as cooling needs combined with recovering industrial demand from the Covid-19 pandemic.

Mexico's own gas production and LNG imports have fallen as pipelines between the two countries come on line. State-owned Pemex produced an average 4.6 Bcf/d of gas in October, down by 4.1pc from the same time in 2020.Pemex aims to boost production to 5.25 Bcf/d of natural gas by 2022, but it has frequently missed output targets.

Gas demand will likely increase over the next several years as Mexico's electricity needs grow with industrial activity returning to pre-pandemic levels. Though power reform remains a key 2022 concern among the country's business community, the question is whether Mexico's public sector can provide sufficient generation capacity, not whether demand will abate.

Lopez Obrador sent a constitutional electricity reform bill to congress in October that would cap private-sector participation at 46pc. The move would cancel private-sector permits for power generation totaling 40,924MW, or 48pc, of Mexico's installed capacity, essentially making Mexico's state-owned Federal Electricity Commission (CFE) dominant in the power sector.

CFE has announced plans for several power plants, indicating expected demand growth. Though little public information is available, CFE's combined projects would increase gas demand in Mexico by approximately 785mn cf/d, according to Eduardo Prud'homme, co-partner at energy consulting firm Gadex. More than half of the projects have estimated start dates of 2024.

Despite the anticipated demand growth for gas-fired power, private-sector investments for gas and power in Mexico are uncertain following Lopez Obrador's shift away from 2013 energy policy reforms. Lopez Obrador's regulatory and legislative moveshave led to postponements of power and manufacturing projects, potentially stunting growth through the remainder of his term, which is set to end in September 2024.

Increased gas interconnection projects within Mexico remain jammed by environmental grievances, negotiations with state agencies and other political issues. TC Energy has repeatedly postponed the completion of its 886mn cf/d Tula-Villa de Reyes natural gas pipeline to 2022. Delays first stemmed from issues related to the Covid-19 pandemic, followed by contract negotiations with CFE. Other lines have been delayed as indigenous groups opposed the pipeline routes.

But pipelines connecting to Mexico have continued to progress in the US, increasing potential US export capacity. The 2 Bcf/d Whistler pipeline — which came on line in July — added a new connection from the Permian basin of west Texas and New Mexico to the Agua Dulce Hub in southeast Texas. Agua Dulce is a supply point for several pipelines that cross the Texas-Mexico border.

TC Energy plans to expand its North Baja natural gas pipeline system — which serves power generators in southern California and Mexico's Baja Peninsula — with a potential startup in 2022, according to EIA data.

Mexico's gas market conditions have also started to more closely track US market conditions as the US-Mexico pipeline network has expanded, particularly between northern Mexico states and west US hubs. Prices at the Waha hub — the main indicator for the value of Permian gas — averaged $3.28/mmBtu for flow in December 2021, up by 36pc from December 2020. The El Encino index in Chihuahua state, which is supplied by the Permian basin, averaged $3.89/mmBtu for December 2021, a 61¢/mmBtu premium to Waha for the same period. El Encino prices averaged a slightly wider 68¢/mmBtu premium in November 2021.

By David Haydon

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04/03/25

Trump aide signals possible retreat on tariffs

Washington, 4 March (Argus) — President Donald Trump's top trade adviser on Tuesday signaled a possible hasty retreat on Canada and Mexico tariffs that roiled financial and energy markets and drew threats of retaliation from the US' neighbors. The US on Tuesday imposed a 10pc tax on Canadian energy imports, a 25pc tariff on non-energy imports from Canada and a 25pc tariff on all imports from Mexico. The moves drew strong condemnation from the other governments and industry groups throughout North America. The US administration has been in talks with the governments of Canada and Mexico all day and Trump "is going to work something out with them," US commerce secretary Howard Lutnick said in a televised interview late afternoon on Tuesday. "It's not going to be a pause, none of that pause stuff, but I think he's going to figure out, you do more, and I'll meet you in the middle some way and we're going to probably be announcing that tomorrow." Lutnick suggested that Trump could possibly "give relief" to products covered by the US-Mexico-Canada (USMCA) free trade agreement negotiated in his first term. "If you haven't lived under those rules, well then you got to pay the tariff," Lutnick said. Nearly all trade between the three countries is covered by the USMCA, so a return to the terms of that agreement would merely mean lifting the tariffs Trump imposed on Tuesday. Lutnick's remarks may be an attempt to mitigate the negative market reaction to Trump's tariffs. The S&P 500 index fell on Tuesday to the lowest point since Trump won the election to his second term in November. US refining and petrochemical industry group AFPM has urged the Trump administration to find a resolution quickly to prevent what would be a continent-wide trade war. Ottawa and Mexico City vowed a strong response to Trump's tariffs. "This is a very dumb thing to do," Canadian prime minister Justin Trudeau said on Tuesday. Trudeau retaliated with a 25pc tariff on $30bn of US imports, followed by another $125bn of imports in 21 days. The largest Canadian provinces, Ontario and Quebec, separately announced possible retaliatory measures in the form of taxes or curbs on electricity exports to the US. Mexican president Claudia Sheinbaum called the US' tariff on all Mexican goods unjustified but is withholding details of her government's planned counter-tariffs and other measures until Sunday. Trump, Lutnick and other US Cabinet members gave confusing signals on the level of tariffs ahead of their imposition, with Lutnick suggesting on 2 March that the rate may be lower than 25pc. The decision-making in the second Trump administration is even more centralized than during his first term, with all key decisions made by the president, who frequently chooses to overrule public remarks by his advisers and announce his intentions via his social media platform. Trump is scheduled to address a joint session of Congress on Tuesday evening. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Mexican peso dips, recovers on tariff hopes

04/03/25

Mexican peso dips, recovers on tariff hopes

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Canada must build pipelines beyond the US: Producers

04/03/25

Canada must build pipelines beyond the US: Producers

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US tariffs could crash auto industry: Ontario

04/03/25

US tariffs could crash auto industry: Ontario

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Atlanta Fed model sees 2.8pc US 1Q GDP drop

04/03/25

Atlanta Fed model sees 2.8pc US 1Q GDP drop

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