‘Volatility is here to stay’ as global demand for natural gas gains momentum – Spotlight on Mexico
North American natural gas futures continued to be unpredictable this week as cold weather descended into the Lower 48, while demand for U.S. gas in Europe and Mexico continued to rise.
The February Nymex gas futures contract lost 25.2 cents day/day on Wednesday and closed at $4.031/MMBtu. March fell 20.3 cents to $3.845.
The next puffs of arctic air are expected to make January the coldest since 2014 in the United States and US production is down from December. Even still, futures prices had not found any momentum this week.
“The natural gas market is volatile and it looks like that volatility is here to stay,” said Santa Fe Gas LLC CEO Santiago Garcia. He spoke Thursday at Industry Exchange LLC’s 7th Mexico Infrastructure Projects Forum in Monterrey, Nuevo León. “We got used to price stability, but that’s gone now.”
At the event, CEO of Eagle Ford Shale producer Rio Grande E&P LLC, Glenn Hart, said the natural gas market has undergone a rapid transformation. “If you walk past a trader’s desk, he used to be glued to the weather in Chicago. Now they’re glued to the weather forecast in Europe, which tells you what’s going on.
NatGasWeather noted on Wednesday that freezing temperatures were expected later this month in the United States and Europe, which would further boost demand for liquefied natural gas (LNG). “Domestic and European patterns are still predicting the coldest/best 15-day pattern so far this winter season as lows of minus 20 to 20 impact much of the northern two-thirds of the United States. , including planned freezes of several Bcf/day to production,” the company said.
US LNG exports hit all-time highs this month. Meanwhile, Mexican imports of US natural gas had a record year last year and are up in January.
Mexico imported 5.65 billion cubic feet of natural gas by pipeline from the United States on Thursday (January 20) and 5.63 billion cubic feet/d in the past 10 days, according to NGI data.
Deliveries to Mexico from West Texas fell to 741 MMcf/d, from 802 MMcf/d last Thursday (January 13). Kinder Morgan Inc. said in a notice to customers Wednesday that forecast weather conditions could cause freezes and limit gas flows on its El Paso pipeline. This could lead to supply shortages and power outages in parts of Texas.
The right price ?
“For the Mexican market, I like the current price,” Garcia said. “It’s a price that allows buyers to compete. Just look at how the international market pays $30/MMBtu…and that also helps boost production, which creates stability in the markets.
Santa Fe was the first distributor to obtain the rights to market natural gas in Mexico after the country’s historic energy reform in 2013-2014.
Garcia noted that the current gas price, coupled with lessons learned from last year’s winter storm Uri, should also spur Mexico to develop its abundant resources.
Natural gas spot prices at Henry Hub averaged $3.91/MMBtu for 2021, the U.S. Energy Information Administration (EIA) said in its latest short-term energy outlook. This year and next should bring slightly lower prices for the national benchmark, with an average price forecast of $3.79 for 2022 and $3.63 for 2023, the agency said.
This week, Mexican President Andrés Manuel López Obrador said the government was seeking to partner with private companies to develop the natural gas-rich deepwater Lakach field. At the Monterrey event, officials from the Comision Federal de Electricidad touted a series of planned pipeline infrastructure tenders that are expected to increase connectivity and spur increased demand.
[MEXICO UPDATE: Plug into NGI’s newly updated Mexico Gas Price Index and Mexico Data Suite, now offering daily, monthly (bidweek) and forward natural gas prices at 43 locations, including a “cheapest-to-deliver” pipeline transportation breakout for six key hubs within Mexico.]
In Mexico, NGI natural gas spot prices rose in the northeast on Wednesday, with Los Ramones up 17.3 cents at $4.873. Monterrey through the Mier-Monterrey system rose 17.2 cents to $4.674.
Tuxpan in Veracruz saw the spot price rise 17.2 cents to $5.297. In the West, Guadalajara’s price jumped 34.7 cents to $5,684. Farther north in El Encino, prices via Tarahumara were $5,372, or 52.4 cents higher than the previous day. On the Yucatán Peninsula, the spot price in Mérida was $6.093 on Wednesday, up 17.0 cents.
The five-day line pack average from Sistrangas in Mexico was 6.549 Bcf on Wednesday January 19, below the optimal line pack of 6.86-7.29 Bcf needed to ensure sufficient pressure in the system. The network operator Cenagas advised users to maintain injections and offtakes at their contractual quantities under pain of penalties.
Demand on Sistrangas on Wednesday was 4.639 Bcf, up from 4.652 Bcf a day earlier. Mexican gas production injected into the system was 1.259, compared to 1.307 Bcf a week earlier. Production from the Southeast led the total, with 695 MMcf/d from the region injected into the pipeline system.
According to calculations by consulting firm Gadex, pipeline imports from the United States into the Sistrangas were 3.366 billion cubic feet on Wednesday, up from 3.313 billion cubic feet a week earlier. Imports of liquefied natural gas in the Sistrangas were 10 MMcf, against 30 MMcf last Wednesday.
In the same vein, the operator of Sistrangas, Cenagas, organizes working sessions with shippers to explain the new rules in place relating to imbalances in the system.
Gas injections in the United States
On Thursday, the EIA reported a withdrawal of 206 billion cubic feet from natural gas storage inventory for the week ending Jan. 14. The figure was higher than analysts’ expectations.
The South Central region posted a shrinkage of 69 billion cubic feet, leading all regions. This included an extraction of 48 Bcf from salt-free facilities and an extraction of 22 Bcf from salts, according to the EIA. Until Mexico expands its storage capacity, this is the most readily available storage system for the country.
For the week ending Jan. 14, total working gas in the South Central region was 1.019 billion cubic feet, compared to 1.062 billion cubic feet in the same period a year ago. The figure was 51 billion cubic feet higher than the average of 1,019 billion cubic feet stored for the same day between 2017 and 2021, the EIA said.