Natural gas exports to Mexico are surging

A major new energy export market quietly emerges as Mexico takes advantage of low-priced U.S. gas.

 

If you look at a recent map of Kinder Morgan’s natural gas pipelines, in the West, you’ll see several new spurs heading south across the border into Mexico. The pipeline giant has been part of a major increase in energy exports in recent years that largely escaped notice. While potential exports of Liquefied Natural Gas, or LNG, hogged countless headlines, exports of natural gas through new and expanded cross-border pipelines nearly tripled from 2010 to 2015, with barely a mention. This growth is expected to continue as Mexico takes advantage of low-priced U.S. natural gas to help continue the transformation of its electricity sector, which in 2014 was opened to private sector participation.

Kinder Morgan's Western pipelines. Courtesy Kinder Morgan, Inc.
“The quiet untold story is that the United States has been a net exporter of natural gas to Mexico for many years,” says Martin Edwards, a vice president for legislative affairs of Interstate Natural Gas Association of America, a trade group for natural gas pipelines companies. “That’s not only expected to continue, but to grow significantly over the next decade or so.”

This swelling market is good news for Western producers, who saw their markets on the East Coast and Midwest dry up in recent years with the shale gas boom in the East.

Texas producers may have been the biggest beneficiaries, because several of the new pipelines run from Texas into Mexico. But Kinder Morgan Inc.’s Sierrita Gas Pipeline Project, which went online last year, runs from near Tucson to Sasabe, Arizona, where it meets a new pipeline on the Mexican side of the border. The pipeline accounts for nearly half of the daily natural gas deliveries the company makes The company delivers gas to Mexico through several different pipelines. “In 2014, we transported approximately 1.9 billion cubic feet per day on average,” Richard Wheatley, a company spokesman, says. Wheatley was constrained in what he could say about Kinder Morgan’s Mexico strategy, because the company is in a quiet period in advance of its earnings’ report. But at an analysts meeting earlier this year, the company highlighted how its web of pipelines connects the natural gas basins of the West to the growing market in Mexico, where the demand for U.S. natural gas was forecast to reach roughly 4.6 billion cubic feet a day by 2024.

Mexico has long imported a small amount of natural gas from the U.S., but under a 2013 law, Mexico opened its electricity market to private investment and triggered a surge in demand for U.S. natural gas.  Natural gas has a lower carbon footprint than the oil it is replacing, so this could help Mexico restrain the growth of greenhouse gases.

The demand for U.S. natural gas from private and independent power plants in the northeast of Mexico and further south is projected to grow significantly over the next couple decades.

“It’s going to continue to increase in scope and scale,” James Brick, an analyst for Wood Mackenzie, a major energy and natural resources consulting firm, says. Exports of natural gas to Mexico accounted for 3 percent of U.S. production as of April and were expected to grow to 5 percent by 2030, according to the U.S. Energy Information Agency. “It’s not nearly as important as the {domestic} power sector, but 5 percent of a major market is a pretty hefty chunk,” Brick, whose forecast agrees with EIA, says.

Mexican exports haven’t gotten the same attention as LNG exports, because “it’s not the new thing,” Brick says. Also, over time, LNG exports will overtake exports to Mexico. Wood Mackenzie predicts that LNG exports, which now stand at about zero, will exceed exports to Mexico in 2019, and by 2030 will make up about 16 percent of U.S. production.

The new pipeline projects that facilitate the growing exports to Mexico have proceeded quickly, with little of the controversy that has surrounded other energy projects. Mexico is a trading partner of the United States, so the pipelines faced fewer regulatory hurdles than LNG export facilities. Environmentalists haven’t fought them as they have LNG terminals and cross-border petroleum pipelines from Canada, such as the Keystone XL, which would carry heavy oil sands crude.  

“I view this as good news,” Edwards says. “Increasing trade with a country that shares a 2,000-mile border with us and can stand to benefit with more economic development, why wouldn’t we be helping to serve that market?”

Elizabeth Shogren is a Washington, DC-based correspondent for High Country News.