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News Article

Will Imported Natural Gas Drop to Historically Low Prices?

By Cas Biekmann | Tue, 09/22/2020 - 15:20

US natural gas prices are dropping steeply, with a perfect storm of causes to blame, which means the US$2 dollars per gallon might even be broken. This prompts two questions to be asked: will Mexico’s industry benefit and is the perfect storm here to stay?

Yahoo Finance outlines the elements that are causing this storm. First, the US Energy Department released its weekly inventory yesterday, which showcased a much larger increase in supply of natural gas in the country than previously expected. Due to an increase in natural gas, stockpiled in underground storage during September, overall stock increased quite a bit: Inventories are currently at 3614 Bcf, which is 535 Bcf more than the levels in 2019 and 421 Bcf over the average of the past five years.

The mild weather is another reason to blame. Coming of the back of traditionally warmer late-summer months, October and even the onset of winter have been predicted to be quite mild, lowering the need for heating or air conditioning and for natural gas.

Natural gas that is transported to Mexico is not necessarily fully tied to these factors, however. If anything, increased demand for exports to Mexico could eventually drive prices back up. Monterrey-based firm Epscon explains that US gas prices are directly tied to those in Mexico. “To a large extent, the decrease in rates occurred due to the historical collapse of natural gas prices registered in the US market, a reference that Mexico uses to set its own natural gas price,” said Federico Muciño, Managing Partner of Epscon, to El Financiero. The energy prices in Monterrey and in other parts of the country in September are around 7 percent lower than in the same month of 2019. This, in turn, can be tied directly to gas prices in the US, as much of the electricity generated comes from combined-cycle power plants running on natural gas that CFE purchased from the private sector.

Whether Mexico’s industry is truly benefitting greatly is somewhat doubtful, Muciño said. “The price level is still very high and the drop is temporary. So, the opportunity is to go out and search for existing suppliers in the market. Then, you get the rate that best suits your business,” he said.

Alberto Escofet, Country Manager of Enagás, explains how Mexico’s reliance on natural gas provides plenty of prospects toward a sustainable future: “We think that natural gas is one of the best alternatives to achieve a sustainable future. It is low-cost and has minimal environmental impact, which makes it the preferred fuel. It is the main fuel that CFE uses for electric generation,” he told MBN earlier this year.

The data used in this article was sourced from:  
Yahoo Finance, El Financiero, MBN
Cas Biekmann Cas Biekmann Journalist and Industry Analyst