An Unexpected New Demand Source for U.S. Natural Gas

Keith Schaefer

By OGIB Research Team

– Dave Forest
Contributing Editor to Oil and Gas Investments Bulletin

Buying on the margins sets prices in commodities markets.The margin is the very highest someone is willing to stretch up and pay to get that supply. The last barrel of oil; the final pound of copper. Everyone pays what the marginal buyer will pay.

The U.S. natural gas market may be on the verge of upping its marginal buying—A LOT.

And it’s not Liquid Natural Gas-LNG. It’s to an unexpected source of demand: Mexico.

Mexican imports of U.S. gas have skyrocketed 92% since 2008. And with export capacity projected to grow to over 7 billion cubic feet per day (Bcfbillion cubic feet (gas)/d), Mexico could start taking 10% of U.S. production—in a very short time frame, with very low capital costs compared to the LNG boom unfolding.

There is a lot less risk, and a lot less cost in getting huge natural gas exports to Mexico, compared to LNG—and the volumes may be enough to move margins in the North American market.

At least six new pipeline projects are now on the books, aimed at sending gas southward.

In Part 1 of this two-part series, I’ll explain what’s happening now, and what potential impact this extra demand could have on natural gas prices. In Part II, we’ll look at which producers will benefit most.

To find out, we take a look below at exactly what’s happening in Mexico, what’s getting built, and who’s positioned to take advantage.

The Not-So-Slow Death of a Gas Producer

Mexico used to have a pretty decent gas industry.

Between 1990 and 2008, the nation’s natgas production grew steadily, nearly doubling over the two decades.

The bulk of this output comes from national oil and gas company Petroleos Mexicanos, or Pemex. With strong natural gas prices between 2003 and 2008, Pemex stepped up its drilling, growing gas production …read more

Source: Keith Schaefer