Memories of Winter Storm Uri were fresh on the minds of natural gas buyers in Mexico as a cold front raced south through the United States and down into Texas.
Mexico’s power grid operator Cenace warned that up to 9,000 MW of natural gas-fired power could be under stress due to limited natural gas supply. The cold was also expected to hit the northern Mexico states of Coahuila, Nuevo Leon and Tamaulipas by as early as Thursday night.
“We’re worried, but we can’t do much since we don’t have any gas storage,” a natural gas buyer in Mexico City said. The source added that the welcome news was that the upcoming Christmas holidays were a time of lower industrial and residential demand.
Also welcome is the prediction from analysts that the storm won’t be as bad as Uri, which sent natural gas prices skyrocketing and led to severe limitations in natural gas supply to Mexico. At one stage during that February 2021 storm, Texas Gov. Greg Abbott ordered that Texas stop supplying gas outside of state lines. Mexico sources the vast majority of its natural gas needs from Texas.
On Thursday, Mexico imported a lower than usual figure of 4.452 Bcf of natural gas via pipeline from the United States, according to NGI calculations. This figure does not include non-public Texas intrastate trades. Of the total gas flows into Mexico, 3.878 Bcf came from South Texas.
“We do not expect a repeat of Uri’s production impacts and associated outages of gas-fired power plants,” Wood Mackenzie analysts Colette Breshears and Eric Fell said Wednesday. “This is partially due to weatherization effects” and “partially from the nature of the storm (this year promises to be extremely cold, yet dry and fast to pass through).”
On Thursday afternoon, NatGasWeather said, “There’s potential for minor impacts to the electricity grid” but “the duration will be much shorter than what occurred in Feb. 2021, so we do not expect a repeat of the massive grid failure seen back then.”
Still, Cenace put into place an operational emergency alert and asked system participants to put into place contingency plans. The alert stems from the potential disruption to natural gas supply, Cenace said.
U.S. production was already being impacted. After starting the week at around 99 Bcf/d, it dropped to around 96 Bcf/d by Thursday with further declines possible, according to Wood Mackenzie. NatGasWeather said “the limited duration of the cold should allow the missing production to come back online fairly quickly as we move through next week.”
Complicating matters is high spot prices and limited availability of LNG in Mexico, which proved a savior during Uri. At the Manzanillo LNG plant on the West Coast, stocks are so low that the operators of the KMS terminal announced last week that they were close to the bare minimum of natural gas to keep the facility operating safely.
Soft Futures, Lofty Cash
Despite frenzied activity in the cash market, natural gas futures were on the downward swing this week on expectations of warmer weather once the cold front passes. The January New York Mercantile Exchange gas futures contract settled at $4.999/MMBtu on Thursday, down 33.3 cents day/day. February fell 31.0 cents to $4.928.
NGI’s Spot Gas National Avg., also fell back on Thursday, shedding 67.0 cents to $17.050. U.S. cash prices had spiked nearly $7.00 on Wednesday as the Arctic chill began spreading its wings through the Midwest.
In Mexico on Wednesday, Los Ramones cash shot up $1.739 day/day to $6.343, according to NGI. Monterrey via the Mier-Monterrey system rose $1.718 to $6.236. Tuxpan in Veracruz via Cenagas saw the spot price jump $1.740 cents to $6.886.
Out West, the Guadalajara price rose $2.082 to $7.223 on Wednesday. Farther north in El Encino, prices via Tarahumara were $6.935, $2.420 higher than the previous day. On the Yucatán Peninsula, the cash price at Mérida was $7.609 on Wednesday, up $1.741.
Sistrangas
Demand on Mexico’s Sistrangas on Tuesday (Dec. 20) was 4.363 Bcf, up from 4.4220 Bcf a day earlier. The power sector was the biggest user of natural gas on the Sistrangas on Tuesday, at 1.270 Bcf. This was followed by the distribution segment (1.093 Bcf) and Petróleos Mexicanos, or Pemex (1.061 Bcf). Industrial end-users accounted for 939 Bcf of demand.
According to calculations from consultancy Gadex, natural gas pipeline imports from the United States into the Sistrangas were 3.271 Bcf as of Tuesday. The Sur de Texas-Tuxpan pipeline injected 625 MMcf into the system. Liquefied natural gas imports into the Sistrangas were 7 MMcf.
U.S. Storage
On Thursday, the U.S. Energy Information Administration (EIA) reported a withdrawal of 87 Bcf of natural gas from underground storage for the week ended Dec. 16. This was lower than expectations, adding downward pressure to natural gas futures prices.
The EIA reported that the South Central region saw no change in stocks. A 3 Bcf injection into salts was offset by a pull of 4 Bcf from nonsalt facilities. Rounding of numbers means the total figure doesn’t always add up perfectly, EIA said.
Until Mexico develops storage capability, this is the storage system most readily available to the country. Buoying Mexico, storage levels in the South Central are now firmly higher than the five-year average.
For the week ended Dec. 16, total working gas in the South Central region stood at 1,199 Bcf, up from 1,155 Bcf for the same time one year ago. The figure was also 97 Bcf higher than the average 1,102 Bcf in storage for the same day between 2018-2022, EIA said.
