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By American Business Conferences
Oct 11, 2015Evaluating commercial opportunities for US natural gas exports to Mexico. |
| In the wake of the new Energy Reforms, and growing demand from large scale industrial buyers, Mexico is set to become a vital market for US natural gas exports.
A surge in pipeline construction across the Texas-Mexico border is underway, estimating the flow of United States natural gas to Mexico to double by 2020. Demand for United States' Natural Gas exports have been growing constantly, with exports from new and expanded cross-border pipelines nearly tripling over the past 5 years.
This has given rise to some very pertinent questions:
These are all key discussions to be explored at United States to Mexico Natural Gas Exports Congress 2015. Viewpoints from industry stakeholder interviewees are noted below.
Mark Luitwieler, Flagship Resources
What is driving the value of the US to Mexico Natural Gas Exports Congress 2015?
This event is extremely relevant to today’s market. There is a natural “put” for US Natural gas in Mexico, for their domestic production is only covering just barely half of their demand and that demand is growing very quickly as Mexico continues to build out their underdeveloped infrastructure.
This infrastructure development hinges on safe and efficient delivery of utilities to new commercial, industrial, and residential improvements. The main focus is developing new gas-fired powered plants across this burgeoning country. This demand paired up with the onslaught of natural gas production in the states, combines for a very exciting and trending topic of discussion.
What are the key challenges American crude producers and midstream companies are facing in terms of US-to-Mexico crude swaps?
I believe the single principal challenge is and will be economics. For a swap of Eagle Ford light crude for say a Mexican Mayan Crude to work for Mexico, the Brent/WTI spread has to be relatively wide or at least wider than it is and has been for most of 2015. This spread has contracted almost $13/bbl fin the last 7 months.
What are the real market opportunities for American E&Ps and midstream companies in terms of crude exchange with PEMEX?
There are very few “Real Opportunities” for the swap of these crudes in today’s market atmosphere. The physical quality fundamentals and supply and demand curves line up well, but the economics of these swaps would not work unless Mexico was willing to take a much steeper discount for their crude or assign a much bigger value to the Eagle Ford oil.
I don’t see this arbitrage window (Brent/WTI) opening up anytime soon. There needs to be a pretty big shift in market dynamics for these swaps to make economic sense. Bi-lateral trade in crude oil, refined products, and natural gas is economically and strategically much more important to Mexico than it is to the US and I believe that Mexico really needs to understand that difference in weighting of importance as they address the initial economics of these swaps.
There may be more long-term value in making the swaps work, even at negative economics, so as to frame up the continuing trade corridor.
What are the biggest risks American companies need to evaluate when considering exchanging crude with PEMEX?
The biggest risks for American companies lie in the same places they do currently when moving commodities to and from Mexico; Theft Security, and Corruption. These are real issues that have been prevalent in the trade between Mexico and The US and are honestly built into the economics a lot of times depending on what is being shipped, its value and its mode of shipment.
This brings me back to the asymmetry of the importance of this trade structure. The US has less to gain from a “National” valuation versus Mexico and potentially more risk based upon our free enterprise system vs a state-run oil company.
Adrian Duhalt, UDLAP & Nonresident Scholar at James A. Baker III Institute for Public Policy - Rice University
What is the importance of aligning US and Mexican stakeholders in the rapidly developing gas export landscape?
Mexico´s demand for US gas has solidly grown over the last years and this trend shows no signs of slowing down. On the contrary, demand is set to become even larger thanks, in part, to the incentives introduced by regulatory changes in the Mexican energy sector. There is no doubt that this surge in demand will represent opportunities for firms on both sides of the border, in particular for midstream players.
Gas output in the US along with demand in Mexico are generating opportunities for investors of both countries. Private players have now more reasons to enter the Mexican gas market. A greater gas transport connectivity between Mexico and the US can be seen as a step forward in the regional energy integration, which at the same time may lead to greater (manufacturing) competitiveness in North America vis-à-vis other regions.
The need for infrastructure is driven by demand in Mexico, which is set to continue growing in the foreseeable future. This undoubtedly is going to generate attractive opportunities for downstream and midstream firms on both sides of the border. This meeting provides the chance for private players and other stakeholders to understand the determinants shaping North America´s gas industry.
David Madero, Director General, CENAGAS – National Center for Natural Gas Control
What is CENAGAS’ involvement in the move towards Mexico taking advantage of low-priced U.S gas?
CENAGAS is the new Technical System Operator in Mexico. Therefore, is looking for the most effective, safe, and efficient manner in which the country can meet the growing natural gas demand. US pipeline gas is the best option for the country, because of price and reliability.
We have proposed a medium-term plan with twelve projects to expand import capacity from the US and to increase the transportation capacities within the country to move gas from the border to central and western Mexico. This plan calls for a fast increase in pipelines all across the country a given that the current need for imports in excess of 2.5 BCF/D, and that domestic demand is expected to grow in excess of domestic supply in the following five years.
Indeed, more natural gas is to be used in Mexico in the following years for electricity generation, industrial expansions and new residential distribution areas, while domestic production is expected to fall in the near and mid-term.
How instrumental is your company this movement?
CENAGAS is important because it will be doing mid-term plans, conducting tender process for strategic natural gas pipeline and storage projects, and directly operating the 5,400 miles of government owned gas pipelines that will be transferred from PEMEX to this new state owned corporation.
How important is it at this time to bring together US and Mexican stakeholders to discuss market intelligence on the rapidly developing gas export landscape?
After the Mexican energy reform it is very important to establish contacts between corporations on both sides of the border to make sure that business plans on both side of the border understand the size of the cross border gas trade needed as well as the opportunities that arise from them. We look forward to communicate the demand and supply outlook from the Mexican perspective and hope that this will carry the message across the border.
Robert Gamez, Vice President Operations, RP Partners Oil & Gas
What is RP Partners Oil & Gas’ involvement in the move towards Mexico taking advantage of low-priced U.S. gas?
My company will benefit from both areas in compliance and potential investment opportunities. Potentially creating new job opportunities in a market that aims as a productive enterprise.
How instrumental is your company this movement?
This market is far from settling down despite of the prices fluctuating. CNBC in a report, stated “the US and Canada together are now considered a Powerhouse”. U.S and Mexican exports haven’t gotten the same attention as other LNG exports; reason being, because it is not a new thing. This private sector proposal will potentially lead to a 16% of U.S. production by 2019, according to resent studies.
Mexico is one of the largest oil producers in the world. According to the World Bank’s Doing Business Indicators, Mexico is ranked 39 in 2015, rising from 43 in 2014, which creates a good environment for foreign companies. Together with the recent energy reform, we can experience a great opportunity for this potential market. Our company feels confident of our development by bringing our advanced technology solutions, high efficiency in quality products, training practices for efficient operations, and designs that track proven results in the U.S. oil and gas sectors.
This will be a competitive market for foreign companies. Our company not only specializes in inspection of new & existing projects, but the continuance to meet and comply with operational maintenance and regulatory compliance to meet and exceed the parameters of established operational procedures.
How important is it at this time to bring together U.S. and Mexican stakeholders in Houston to discuss market intelligence on the rapidly developing gas export landscape?
The new projects that facilitate growing exports to Mexico will also benefit from a trading partners’ perspective, with fewer regulatory hurdles. Increasing the trade with a country that shares a 2000+ mile border with the U.S. and can stand to benefit with more economic development, is a fair shot to help and serve such market to benefit as well.
What will you be aiming to discuss at the US to Mexico Natural Gas Exports Congress 2015?
I will be aiming to open discuss of natural gas and crude price flux or potential forecast. To address the impact of potential variation in commodity prices on Mexican Demand.
Other Key Topics Explored in the US to Mexico Natural Gas Exports Congress 2015
Key Market Variables to address:
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