Activity in Mexico Spikes Demand for US Natural Gas

Justin Christensen |

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For many Americans, talk about Mexico usually means talk about vacation. Almost six million visited there in 2012 and an estimated one million are retired or living there part-time.

Lately, the conversation has been shifting. Natural gas imports from the United States to Mexico have jumped a whopping 92 per cent since 2008 and demand is expected to more than double by 2019.

Here’s why.

  • Growth in Mexican Auto Manufacturing – Honda Motor Co. and Mazda Motor Corp. opened new plants in central Mexico earlier this year. Audi, Renault-Nissan, BMW and Kia are following suit within the next two to five years. IHS analysts project the southern country to be rolling out more than five million vehicles by 2020.
  • Conversion in Power Generation – The country has slowly been switching from oil-fired electricity to a more economical, natural gas. Only 20 per cent was fuelled by natural gas in 2000 and that rose to 50 per cent in 2007. Projections estimate another 28 gigawatts will be needed by 2027.
  • Lack of Domestic Fuel Supply – Mexico’s national oil and gas company, Pemex, was producing with steady growth since 1990. However, with the economic downturn in 2008, production has declined significantly since, making it cheaper to import from north of the border.
  • Untapped Natural Resources – Our southern neighbor actually has an abundance of shale gas resources, but according to analysts, their energy corporations lack the desire and expertise to go after the buried treasure. That may eventually change, but for now, they are seeking less costly sources.
  • Interested Industry Investors – Despite recent booms here in the US, construction of oil and gas pipelines for large projects has been challenged by environmental and community resistance. So, US companies are now setting their sights southerly with several deals underway or in discussions.
A Win-Win Opportunity

Of course, this is great news for natural gas producers here in the United States. With the shale boom of late, the commodity has been flooding the market – see “The U.S. Is Close to Oil Independence. Here’s Why it Matters.” Last year, the Energy Information Administration reported production to be the highest volume on record at 24.3 trillion cubic feet.

As we know, when supply is up, market prices tend to come down. In July of this year, natural gas Futures dropped to a seventh-month low of less than $4 a million British Thermal Unit (BTU). This has come at an optimal time for Mexico’s influx of activity and given the US an opportunity to offload some of its surplus, making it a win-win situation for both countries.

Market Impact

However, the shift hasn’t pleased everyone. The saturated market has meant a noticeable decline in Canadian natural gas imports for the eastern States – 12 per cent less from 2012 to 2013. And just last month, the New York Mercantile Exchange saw prices fall by 15 cents. With a 16.7 per cent loss since mid June, money managers have been selling out.

But as the vacation destination’s demand continues to increase in the coming years, it likely won’t be too long before natural gas prices are on the rise once again.

Even with price fluctuations, the development comes as good news for US fuel distributors. When supply and demand for products and services is healthy, it generates positive business activity. If you’re partnered with a fuel distributor who seeks to help its customers succeed, that means good news for you too.