During the last nine years, Mexico has experienced a continuous decline in its gross natural gas output going from a peak of more than 7 billion cubic feet per day (bcfd) in 2009 to 4.8 bcfd in 2018.
Currently, more than 50% of the natural gas domestic demand is in power generation and approximately 21% is destined for industrial use. To counter the production decline, natural gas imports from the US have steadily increased and today account for about 50% of current domestic consumption.
In fact, the imports reach 60% of current domestic demand when we exclude from the domestic supply natural gas injected, flared and used internally by Pemex. The forecast for natural demand indicates a continuous increase of Mexico’s domestic consumption surpassing 9 bcfd by 2025, but the supply forecast for domestic consumption is expected at best to remain in current levels and below 5 bcfd by the same year. This scenario will surely increase the dependency from Mexico on US natural gas over the first half of the next decade.
US export of natural gas vs Mexico’s natural gas gross production
Source: EIA, GlobalData Oil and Gas
Higher natural gas prices south of the US border and an increase in the number of pipelines connecting the US with Mexico’s network support the increasing exports of US natural gas to Mexico. In other words, natural gas price differentials are a key signal to natural gas marketers and the existing pipeline capacity allows for the volume to freely move south.
Mexico’s dependency on US natural gas will continue
In spite of the current’s administration claims on recovering energy sovereignty, Mexico’s dependency on US natural gas will continue over the next decade. Without a comprehensive strategy that considers the development of large natural gas resources both onshore and offshore it will be difficult to reduce the volume of imports demanded for power generation and industrial use.
On the other hand, the interconnection of US and Mexico natural gas markets appears to work and at present, the cheap natural gas from Texas seems a far more convenient option for Mexico than having to face permanent and systematic shortfalls of supply or to import from further away sources.