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All News » Changes in Mexican Law Cause Natural Gas Exports to Rocket

Changes in Mexican Law Cause Natural Gas Exports to Rocket

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It’s boom time for gas and electricity in Mexico, despite a depressed oil market. Oil investment in Mexico was the main focus of foreign investor interest as the country amended its constitution and changed its laws to permit private finance into what used to be a national monopoly. But just as President Enrique Pena Nieto signed the final batch of laws in mid-2014, the oil price has more than halved and oil investors are battening down the hatches.

Shale Changes U.S. Gas Market

Pipeline companies in the U.S. have been swift to capture a new gas market in northern Mexico. Traditionally, U.S. gas producers in Texas and along the Gulf Coast would sell their output to the U.S. east coast. Now this market has become the domain of shale gas producers – particularly those from the Marcellus formation that stretches along the whole of the Appalachian basin. So the Texans have discovered Mexico again.

Mexico-U.S. Gas Trade Booms

There has been a modest gas trade between northern Mexico and the U.S. for decades. Most of Mexico’s oil and gas production is located in the south of the country and offshore. The country lacks essential gas infrastructure to transport the fuel to the north and industrial users in its maquiladora – the free trade zone sector.

Kinder Morgan Investment

Mexican energy sector reform meant that it has become easier to export more U.S. gas to Mexico, and this has fuelled a pipeline construction boom. The Sierrita gas pipeline from El Paso to Mexican gas pipelines on the border went on stream last year. Owned by Kinder Morgan, the line carries 1.9 billion cubic feet per day (Bcfd), a volume estimated to rise to 4.6 Bcfd by 2024. Kinder Morgan is also involved in the 97-mile, 24-inch-diameter gas interconnection between U.S. intrastate pipeline facilities at King Ranch, Kleburg County, Texas, and the Pemex Petroquimica pipeline on the border. Kinder Morgan also owns the 95-mile Mier-Monterrey pipeline that feeds a 1000 megawatt (MW) gas-fired power plant in Mexico as well as the Pemex natural gas transportation system.

It’s the largest U.S. pipeline operator, and Kinder Morgan plans to double the size of its U.S.-Mexico gas interconnections and spend around US $100 million in the process. In January this year, U.S. company Energy Transfer Partners won two contracts worth US $1.363 billion for more gas pipeline connections between Texas and Mexico. Energy Transfer operates 36,000 miles of gas pipelines in the U.S. Its partners in the Mexican project include Florida-based Mastec and Carso Energy, a company owned by Carlos Slim, Mexico’s richest man.

Saving Jobs

Gas exports to Mexico were around 2.4 Bcfd in April this year, according the U.S. Energy Information Administration (EIA) – a rise of 25% on the previous year. They are expected to reach 5 Bcfd by 2020. A main driver for this demand has come from the power-generation sector. Mexico hopes to cut its dependence on fuel oil for power generation and save some of the jobs which previously seemed on the rocks.

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