Mexico loses power as cold dents US gas flow: Update

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Natural gas supply shortages triggered power outages across northern Mexico today as a result of a record cold snap in the southern US.

"A lack of natural gas and the loss of transmission at 7:48am caused an imbalance in the north and northeast, affecting about 6,950MW of capacity," grid operator Cenace tweeted today. Around 400,000 users have been affected.

"In light of the natural gas shortage, Cenace calls on the people in the Nuevo Leon, Tamaulipas and Chihuahua to reduce their electricity consumption over the next few hours," the agency added.

The cold weather has cut gas production in the US Permian basin – the main source of Mexico's pipeline imports, driving prices higher and pressuring supply across the region.

Gas prices soared by up to 5,000pc to $600/MMBtu in some areas in the US, state-owned power utility CFE said today.

Around half of gas-producing wells in the affected area have been shut-in, with output in strategic basins for CFE purchases down to 5 Bcf/d from 8 Bcf/d, CFEnergia director Miguel Reyes said today.

Gas pipelines have also been frozen, preventing flows from arriving in Mexico. Around 1.2 Bcf/d of gas flows have been impacted, Reyes said.

CFE plans to deploy all of its coal, diesel and fuel oil-fired power plants with a combined installed capacity of 22,030MW "in order to guarantee network reliability despite the high levels of contamination," he said. CFE is also expecting the arrival of two LNG cargoes at its Altamira terminal and one LNG cargo at its Manzanillo terminal in the "coming days," in order to mitigate the lack of US pipeline supply.

CFE expects the gas shortages to continue until weather conditions start to improve from tomorrow.

Vulnerable supply

Some 60pc of CFE's gas purchases come from long-term transport contracts along 25 lines built out during the previous administration, with the remaining 30pc of purchases made in the spot market.

CFE expects to incur additional costs of Ps20bn ($1bn) because of the spike in gas prices, but Reyes said this would not be reflected in increased electricity tariffs.

Mexico is heavily dependent on US pipeline imports for electricity generation as domestic gas production has declined over the past decade. Imports of 5.52 Bcf/d covered 68pc of consumption in November 2020, according to the latest government data. But the country has no storage facilities, leaving it vulnerable to operational disruptions.

President Andres Manuel Lopez Obrador's government abandoned his predecessor's plan to build 45 Bcf of commercial storage by 2026 with outside investment in favor of a more limited proposal that would include 3 Bcf of storage in salt caverns in Shalapa, Veracruz state and 3 Bcf at the Altamira LNG terminal.

Combined-cycle capacity accounts for 40pc of Mexico's total installed power generation capacity of 86GW, according to the energy ministry's power planning document published on 31 January.

This is Mexico's second major power outage within three months, following a nationwide outage in December caused by a fault in transmission infrastructure that affected 10.3mn customers.

By Rebecca Conan