What's behind Mexico's surging demand for US gas?

US natural gas exports to Mexico will continue to rise in 2020 as new pipelines connect Permian and Eagle Ford shale wells to thermoelectric plants south of the border, according to the US Energy Information Administration (EIA).

US piped gas shipments to the Mexican market from January to October 2019 reached 5.1Bf3/d, up 10% year-on-year, EIA said in its latest short-term energy outlook.

"Exports to Mexico should continue to increase as more natural gas-fired power plants come online in Mexico and more pipeline infrastructure within Mexico is built," the Washington-based agency said. 

EIA did not provide a forecast for Mexican gas imports from its northern neighbor but said total outbound US shipments of the fossil fuel would rise to 8.10Bf3/d in 2020 and 8.50Bf3/d in 2021, up from 7.81Bf3/d in 2019. 

PIPELINES

Among key pipelines expected to begin operating in Mexico this year are Fermaca's Villa de Reyes-Aguascalientes-Guadalajara section of the Wahata-Guadalajara system and Grupo Carso's Samalayuca-Sásabe line.

Another project slated for completion in 2020 is the interconnection between the Sistrangas national pipeline network and the isolated Mayakan duct in Yucatán state. 

However, the Tuxpan-Tula (TC Energy), Tula-Villa de Reyes (TC Energy) and Guaymas-El Oro (IEnova) lines are unlikely to be finished this year as they face ongoing permitting issues and social opposition. 

The projects are seen as vital in Mexico's quest to meet growing demand from thermoelectric power plants as state utility CFE prioritizes gas-fired electricity generation.

Also Read: Six thermo projects underway in Mexico amid generation push

BRAZIL

EIA expects Brazil's total liquid fuels production to grow by more than 0.3Mb/d in 2020 and 0.2Mb/d in 2021, boosted by pre-salt fields off the southeast coast. 

It said the seven floating production, storage, and offloading vessels (FPSOs) that began operating in 2018 and 2019 are now producing at "maximum or near-maximum capacity" after overcoming delays. 

"The main driver of growth will continue to be at least four more new FPSOs through 2023," the report said. "EIA believes the Santos Basin, particularly the Lula and Búzios fields, will produce enough crude oil in the next two years to offset declines in Brazil’s more mature onshore and offshore areas."

VENEZUELA

Meanwhile Venezuelan crude oil production is expected to continue falling, "albeit at a slower overall rate" after averaging 810,000b/d in 2019, EIA said. 

Oil output in the South American country, which accounts for around 95% of its export earnings, has fallen by more than 2Mb/ d over the past decade, throttled by political and economic turbulence.

Venezuela's cash income has been further eroded because only about half of its crude exports generate cash revenues, according to IEA. 

"The rest is used for in-kind loan payments to China, which become less valuable with lower global oil prices," the agency said. 

It added that Venezuela's oil earnings were also impacted by ongoing payments to ConocoPhillips – following an arbitration agreement about its seized assets – and to holders of bonds issued by state oil company PDVSA.