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If Mexico Goes MIA, Permian Gas Could Flame Out


Natural gas spot prices fell to below $3.00 per million British thermal units on Tuesday. United States Natural Gas (ticker: UNG) notched a 0.31% decline so far. The Energy Information Administration is expected to release supply and demand data later this week, which tends to move gas prices on the day, but natural gas and natural gas stock investors have bigger fish to fry in Mexico.

Photo by Spencer Platt/Getty Images
Photo by Spencer Platt/Getty Images

Three pipelines connecting the Permian Basin to Mexico came online with total capacity of 3 billion cubic feet per day or bcfd early 2017, but flows have been at a paltry 0.2 bcfd, says Bernstein analyst Jean Ann Salisbury. The firm expected 1.5 bcfd. She thinks that delays in Mexico build-outs “will most negatively impact Permian producers.” Salisbury wrote:

We continue to assume that the Mexico demand will come in time to keep shut ins from happening, but do forecast Permian differentials rising above $1/mmbtu by mid 2018, set by the 60c-$1.1/mbtu max interruptible rate to the Midcontinent area, which we think itself could trade up to 40 cents below Henry Hub as the Marcellus pushes westward. This is 40c worse than the Waha forward strip, which we believe is pricing in the best case scenario on Mexico and new pipelines.

Best case scenario: Comanche Trail, TransPecos, and Roadrunner flows will pick up to 2 bcfd by early 2019 as downstream pipelines come online. However, if Mexico demand remains missing-in-action by the end of next year, “we could face flaring and shut ins in the Permian as all exit capacity is used up,” Salisbury says.


2 Comments on "If Mexico Goes MIA, Permian Gas Could Flame Out"

  1. rockman on Wed, 25th Oct 2017 5:02 pm 

    If one isn’t paying attention they’ll take this article completely opposite to reality. It’s focused on the current low volume being carried by those new pipelines from the Permian Basin to Mexico. Whatever the reason it has nothing to do with a lack of demand. From 2010 to 2016 exports to Mexico increased 4X. In fact, from the latest numbers reported by the EIA, last July Mexico imported more NG from the US then ever before in history:

  2. Anonymous on Wed, 25th Oct 2017 11:57 pm 

    That’s 4.5 bcf/d in JUL. An extra 1.5-3 BCF is a huge jump. Also even if there are willing extra customers in Mexico, need to wait for the internal systems to get built on the other side of the border to get it to them. Article wasn’t saying Mexico lacks demand. Just a little slow on pipe construction. Not as bad as the Yanks in NY and MA though.

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