Mexican power market looks ready for subdued summer demand

Normally prone to buckle during peak summer demand, Mexico’s power market is likely to see adequate electricity supply this year. While that is partly due to more natural gas pipeline systems entering service, the integration of the power grid comes amid declining consumer demand and the USMCA free trade deal taking effect. 

Data from S&P Platts indicates that on June 25 Mexico imported a record 6.1Bf3 (billion cubic feet) of natural gas from the US, the second time imports broke the 6Bf3/d mark last month. 

“On June 25, however, the national pipeline grid operated by Cenagas had one of its lowest minimum operating pressures of the year,” S&P Platts said. “The data points definitively to a pipeline imbalance as the incremental factor behind that day’s record gas import number.”

The pipeline imbalance arises from declining domestic production and incomplete regional pipeline networks coming up against rising industrial demand for gas, along with a greater ability to import large amounts of natural gas through completed pipelines that originate in the US.   

So far, imports have alleviated pressure on declining domestic gas production. Also in May, S&P Platts forecast that if social distancing and COVID-19 restrictions remain in place summertime demand would drop by 600Mf3/d, compared to 2019.

NORTHERN, CENTRAL MEXICO NEARING INTEGRATION

In northern Mexico gas imports are on the rise, averaging 700Mf3/d in June, a record according to S&P Platts. 

In the coming weeks the Wahalajara pipeline network is forecast to start operating, boosting US natgas imports to northern Mexico by 400Mf3/d. It is overdue, delayed by a dispute over control over one corridor of the network between Fermaca, the gas line’s builder, and Cenagas. 

With central Mexico now increasingly well supplied by the South Texas-Tuxpan pipeline (2.6Bf/d capacity) artery, expected flows via Wahalajara could see the largest population areas in the country suppled with US natural gas imports by August.  

STABILITY FOR YUCATÁN?

S&P estimates that a multi-year reversal of the Cempoala compressor station, now destined to facilitate imports of gas to the Yucatán Peninsula, could bring stable power supply to that part of the country in the coming weeks. 

By some estimates, the Yucatán region has slightly less than 1Bf3/d of unmet demand, making it Mexico’s most energy-starved region. 

Now, though, gas imports via South Texas-Tuxpan and NET Mexico, another pipeline, could rise, as flows could more easily be transported to the Yucatán, according to S&P Platts.

Easing the flow of gas to the region could concentrate greater attention on Baja California Sur, arguably the shoddiest power market in Mexico. 

Federal utility CFE has mulled a variety of stop-gap plans, such as using barges to ensure steady natgas supplies to a region that suffers from summer blackouts. Still, a clear sense of how adequate power will be delivered there remains unclear.

USMCA REINFORCES NATGAS IMPORTS

Another important driver of gas supply is the USMCA trade deal with the US and Canada, which took effect on Wednesday.  

US trade representative Robert Lighthizer said on the eve of the deal’s launch that it would ensure the “free flow of energy” without tariffs from the US to both Canada and Mexico, noting both cross-border gas pipelines and the easing of regulations to expedite LNG exports.

US natural gas via pipelines, already accounting for 62% of Mexico’s supply, look increasingly set to be the country’s dominant power source. 

Under the radar, the US recently authorized cryogenically stored LNG to be transported via rail. Should Mexico’s regulators follow suit, that too could boost gas supplies from the US.