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Analysis

Gas Market

Wed, 02/19/2014 - 11:44

Natural gas prices were low at the end of the 1990s, and spiked in 2000 before skyrocketing over the course of 2003. Given this volatility, investments in gas-fired power generation became seen as riskier, until shale gas discoveries and new extraction technologies allowed natural gas production to grow significantly in North America. This heightened availability of natural gas reduced prices drastically after 2008, when they reached a peak of US$8.86 per million Btu. These were lowered to US$3.94 per million Btu in 2009, the lowest price since 2003, and have dipped ever since. Mexico is trying to secure a long-term hold on this cheap resource, since its low price is now expected to hold steady for several decades. To achieve this, the expansion of the pipeline network connecting Mexico and the US, as well as Mexico’s domestic pipeline network, is essential in order to supply natural gas to end users. If this is not achieved and LNG imports are increased, electricity prices and, consequently, the cost of operation of many industries will increase significantly.

NATURAL GAS EXPORTS AND IMPORTS IN MEXICO

Mexican exports of natural gas increased for three years in a row before reaching their peak in 2008 when 128mcf/d was exported. After this, they dropped off drastically in the subsequent years, going under 1mcf/d in 2012. At the same time, Mexico has become a major importer of natural gas, especially due to the shale gas boom that is strengthening the position of the US as an energy exporter. The demand for natural gas in Mexico will increase in the coming years and PEMEX’s production will not be able to keep up with the demand of the Mexican market. Through the construction of more pipelines, the tendency of natural gas imports is on the rise while exports look to remain low in the coming years. The increased imports of natural gas are expected to reduce the risks of critical alerts and to guarantee supply for the Mexican market.

NATURAL GAS EXPORTS AND IMPORTS IN MEXICO