Utilization of the Wahalajara system is ramping up quickly which boosts U.S. gas exports to Mexico out western Texas, and there is also additional takeaway capacity out of the Permian Basin. Texas is home to the Eagle Ford play, one of the most actively drilled targets for unconventional oil and gas.
US gas exports to Mexico reached a record 5.5 billion cubic feet per day (Bcf/d) in October 2019, largely due to the completion and startup of the Sur-de-Texas-Tuxpan pipeline in September. Gas flows via the US border at Brownsville, Texas, to the south-eastern state of Veracruz in Mexico averaged 0.6 Bcf/d during the last quarter of 2019, or about 20% of the pipeline’s capacity.
US pipeline gas exports to displace LNG
Analysts say US gas deliveries via the Wahalajara network will displace higher-cost LNG imports into Mexico’s Manzanillo terminal, which serves markets in Guadalajara and Mexico City.
Mexico’s gas demand keeps rising, spurred by the recent start-up of several combined-cycle power stations and booking for the scheduled 2020 completion of the 0.89 Bcf/d Tula-Villa de Reyes pipeline which will stretch to central Mexico.
However, most of the demand centers are in southern Mexico, waiting to be connected to the VAG pipeline. Three of the project’s four pipelines in Mexico that are currently in-service include the 1.4 Bcf/d Ojinga-El Encino pipeline (in service since June 2017), the 1.5 Bcf/d El Encino-La Laguna pipeline (in service since January 2018) as well as the 1.2 Bcf/d La Laguna-Aguascalientes: 1.2 Bcf/d (operational since December 2019).
Waha Hub gas prices set to strengthen
Permian gas prices at the Waha Hub have been steeply discounted to Henry Hub, the US national gas benchmark. However, analysts expect Waha gas prices to strengthen as more and more of the surplus shale production from the Permian gets exported to Mexico.
Currently, the Comanche Trail pipeline keeps delivering an average of 0.1 Bcf/d of natural gas to Mexico since the San Isidro-Samalayuca pipeline entered service in June 2017. Flows are not expected to rise further until the 0.47 Bcf/d Samalayuca-Sásabe pipeline will be completed on the Mexican side in either late 2020, or early 2021.
The Trans-Pecos pipeline, the U.S. segment of the Wahalajara system, did not transport significant volumes of natural gas until October 2018; it is currently only operating at 10% to 15% of its total capacity.
Mexico has been expanding its natural gas pipeline system since 2016 which supported the continuous growth in US gas exports. Most of these volumes originate from southern Texas, notably since the regional US gas network was extended and the Los Ramones Phase II pipeline in central Mexico completed.