Positive Outlook for US Pipeline Exports to Mexico in 2023

US LNG exports grew by 8.6% year-on-year to an average of 10.6Bcf/d in 2022, according to the Federal Energy Regulatory Commission's (FERC) 2022 State of the Market report, mainly driven by Europe seeking a substitute for Russian supply.

However, pipeline exports to both Canada and Mexico took a hit in 2022. The latter fell 3.7% to average 5.7Bcf/d, as stated by FERC. In Mexico, the electricity and industrial sectors have led natural gas consumption growth in recent years, which has been met by pipeline imports from the US.

The situation looks promising in 2023, however, with exports averaging around 5.9Bcf/d in March. Gas demand in Mexico is highest in the summer months as power generation ramps up to meet cooling demand. Moreover, CFE is developing over 7GW of natural gas-fired power generation by 2025. These power plants would require an additional 1.1 Bcf/d of natural gas.

Manuel Bartlett, Head of CFE, recently called Texan gas "the cheapest gas in the world" and said the company was doing all it could to maximize its usage. Among other projects, he highlighted the US$4.5 billion Southeast Gateway offshore pipeline jointly developed by CFE and TC Energy Corp. Southeast Gateway is an extension of the existing 2.6 Bcf/d Sur de Texas-Tuxpan pipeline, bringing gas to the cities of Coatzacoalcos and Paraíso, Tabasco, which is the site of the Olmeca oil refinery.

Last year, natural prices skyrocketed with no new LNG capacity expected to come online in 2023 and new Mexican demand is still a ways off. The Henry Hub US national benchmark averaged US$6.38/MMbtu for the year, up from US$3.82 in 2021. "This was the highest average spot price at Henry Hub since 2008, and the largest absolute year-over-year average price increase since 2005," FERC researchers said.

FERC researchers explained that natural gas demand growth surpassed the increase in production, which boosted prices. In 2022, demand was driven by increased domestic consumption and LNG exports. 

The Energy Information Administration (EIA) predicts that US natural gas production and LNG exports are likely to grow between now and 2050 with US domestic gas consumption dropping only slightly. All the scenarios modeled in EIA's latest Annual Energy Outlook (AEO) show the US remaining a net exporter of natural gas and petroleum products through mid-century, driven by rising international demand.