North American natural gas futures for the coming summer months rose above the $3.00/MMBtu mark this week.
Expect stronger prices throughout the summer, said analysts who spoke at the LDC Gas Forums Northeast in Boston. They said that sizzling temperatures, combined with lower production, would bolster prices. They also cited rising imports of U.S. natural gas in Mexico.
Mexico has imported 7.61 Bcf/d over the past 10 days, according to NGI calculations. Every U.S. region has seen an increase in pipeline pulls from Mexico this month, according to NGI analyst Josiah Clinedinst.
“This trend will likely continue through the remaining days in June due to the consistently warm weather throughout Mexico,” he said.
Wood Mackenzie has Mexico imports averaging 7.2 Bcf/d so far in June, an all-time high.
“This average volume makes for the third consecutive month of increments, which have largely responded to cooling demand in the power sector, in turn triggered by above-normal temperatures,” Wood Mackenzie analyst Ricardo Falcón told NGI’s Mexico GPI.
Falcón warned, however, that a heavier than usual hurricane season forecast for this year could have a downward impact on flows.
“With weather forecasts suggesting an atypically high tropical activity on the Atlantic Ocean this year, Mexico imports may slightly tilt to the downside. If materialized, this behavior would not only respond to demand weakness but also to further recovery of Mexico’s hydropower output, a supply component that marked record lows last winter.”
U.S. natural gas imports have accounted for more than 70% of Mexico’s market needs so far this year, according to Wood Mackenzie.
New President
Falcón also weighed in on the election in early June, which saw establishment candidate Claudia Sheinbaum of the ruling Morena party win in a landslide.
“Markets are trembling in view of the strong government mandate that President-elect Claudia Sheinbaum will have once taking office. Her efforts to appease investors’ concerns have not yet helped clarify how much her administration will detach from the agenda of outgoing President Andrés Manuel López Obrador, or AMLO,” Falcón said.
“Once installed, Sheinbaum and her energy cabinet will have to find a balance between preserving the status quo and pursuing a ‘greener’ future for Mexico. Against this backdrop, her administration will need to secure the natural gas sector’s continued growth beyond mere market resilience. The ‘energy sovereignty’ principle she promoted in her campaign will be put to the test, considering the big challenges ahead, such as building up much-needed gas storage capacity, deepening cross-regional market integration, and securing long-term opportunities as those offered by gas liquefaction/LNG export projects.
“Bottomline, Mexico’s next president will need to reconcile AMLO’s inherited resource nationalism with her more technical approach to energy security,” Falcón said.
One bright spot has been a turn at the end of the AMLO administration to more market friendly principles.
As an example of this, earlier this month Mexico’s Centro Nacional de Control del Gas Natural (Cenagas), operator of the Sistrangas natural gas pipeline network, said it was offering 657,405.773 GJ, or 631 MMcf/d, of firm natural gas transport capacity to interested shippers through an open season.
Shippers can reserve capacity at 10 reception points throughout the country, spanning from the U.S.-Mexico border to the Tehuantepec Isthmus in southeastern Mexico. The open season lasts until Aug. 30.
Mexico Prices
In Mexico on Wednesday, natural gas cash prices at Los Ramones rose by 13.4 cents day/day to $2.943, according to NGI data. Monterrey via the Mier-Monterrey system was up 13.5 cents to $2.754. Tuxpan in Veracruz via Cenagas spot price rise 13.4 cents to $3.407.
Out West, the Guadalajara natural gas price fell 0.1 cents to $3.064 cents on Wednesday. Farther north in El Encino, prices via Tarahumara were $1.961, 11.4 cents lower than the previous day.
On the Yucatán Peninsula, the cash price at Mérida was $4.271 on Wednesday, up 11.0 cents.
U.S. Storage
On Thursday, the U.S. Energy Information Administration (EIA) reported a 74 Bcf injection into storage for the week ending June 7. The figure sent prices lower.
The South Central region, close to Mexico pipelines, saw a build of 13 Bcf that included a 6 Bcf increase in nonsalt stocks and a bump of 6 Bcf in salts. EIA noted that totals do not always add up because of independent rounding.
For the week ended June 7, total working gas in the U.S. South Central region stood at 1,159 Bcf, up from 1,102 Bcf for the same time one year ago. The figure was 170 Bcf higher than the five-year average of 989 Bcf.
Inventories in the South Central region were getting tighter. They were 18% above the five-year average as of May 31, according to the EIA. However, that was down significantly from mid-March, when South Central stocks were 42% above the five-year average.
