Natural Gas Futures Pressured to Upside As Regulatory Strains Take Center Stage – Mexico Spotlight

North American natural gas prices crossed the $8.00/MMBtu handle this week as blazing hot weather strained power demand.

The August New York Mercantile Exchange gas futures contract surged 74.3 cents day/day on Wednesday and settled at $8.007/MMBtu. A lighter than expected storage injection on Thursday again sent prices higher.

This month the United States is on pace to rank among the top three hottest Julys on record, Bespoke Weather Services said. Meanwhile exports are strong, in particular to Europe where Russia’s war on Ukraine means the continent is facing gas rationing heading into the winter.

Mexico imports of natural gas via pipeline were 5.68 Bcf/d on Thursday and the 10-day average was 5.71 Bcf/d, according to NGI calculations. These figures do not include non-public intrastate trades.

Mexico imports have remained strong despite natural gas prices being more than double where they were last summer.

IPGN natural gas prices in Mexico jumped to a record $7.650/MMBtu in June. This is compared to $7.390 in May and $3.530 in June of last year, according to the latest monthly index published by the Comisión Reguladora de Energía (CRE). The CRE used 384 transactions from information provided by 29 marketers to calculate the June IPGN index, which is the most recent available.

Regulatory Issues

The major story of the week in Mexico was U.S. Trade Representative Katherine Tai requesting dispute settlement consultations with Mexico under the United States-Mexico-Canada-Agreement free trade pact.

Among complaints of unfair treatment of U.S. firms, Tai cited a June 2022 directive from Mexico energy ministry Sener that would require natural gas marketers and large consumers to source the fuel from either national oil company Petróleos Mexicanos (Pemex) or state power company Comisión Federal de Electricidad (CFE). A federal judge has since struck down the rule, though Sener is appealing the decision.

“It’s not a surprise that this step was finally taken when natural gas was added to the list of problems,” a natural gas marketer told NGI’s Mexico GPI. “There are many people in the industry in Texas who are not pleased by the Sener plans.”

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Canada joined the fray on Thursday with its own request for dispute settlement consultations over changes to the energy industry law.

An analysis by NGI found that as a share of U.S. exports, CFE’s subsidiaries have  actually seen their imports of U.S. natural gas into Mexico grow since 2017. CFE’s market share rose from 31% in 2017 to 46% in 2021, or from 1.42 Bcf/d to 2.72 Bcf/d.

Pemex’s imports dropped from 1.77 Bcf/d to 905 MMcf/d in the same time frame, while private sector importers grew their share from 1.39 Bcf/d to 2.32 Bcf/d.

Sistrangas

Mexico’s Sistrangas five-day line pack average rose this week, hitting 6.551 Bcf on Wednesday (July 20). The line pack is below the optimal range of 6.86-7.29 Bcf needed to guarantee sufficient pressure in the system. Line pack has been a persistent problem all year on the Sistrangas.

Demand on the Sistrangas on Wednesday was 4.693 Bcf, up from 4.671 Bcf a day earlier. Mexico gas production fed into the system was 1.262 Bcf. Southeast production dominated the total, with 699 MMcf from the region injected into the pipeline system.

According to calculations from consultancy Gadex, pipeline imports from the United States into the Sistrangas were 3.518 Bcf on Wednesday, versus 3.277 Bcf a week earlier. LNG imports into the Sistrangas were 23 MMcf.

Mexico Cash Prices

In Mexico, NGI natural gas cash prices rose about a dollar week/week, after similar gains the week before. On Wednesday, Los Ramones rose 29.1 cents day/day to $7.802. Monterrey via the Mier-Monterrey system gained 28.8 cents to $7.568.

Tuxpan in Veracruz via Cenagas saw the spot price rise 28.9 cents to $8.324. 

In the West, the Guadalajara price was up 28.9 cents to $8.500. Farther north in El Encino, prices via Tarahumara were $7.827, 16 cents higher than the previous day. On the Yucatán Peninsula, the cash price at Mérida was $9.019 on Wednesday, up 28.8 cents.

U.S. Gas Storage

On Thursday, the U.S. Energy Information Administration (EIA) reported a 32 Bcf injection into natural gas storage inventories for the week ending July 15. The print was lower than expectations.

South Central region stocks dropped 16 Bcf, with a 15 Bcf draw from salt facilities and nonsalt inventories holding flat, according to EIA. Until Mexico develops storage capability, this is the storage system most readily available to the country.

For the week ended July 15, total working gas in the South Central region stood at 874 Bcf, down from 1,001 Bcf for the same time one year ago. The figure was also 149 Bcf lower than the average 1,023 Bcf in storage for the same day between 2018-2022, EIA said.