Mexico’s presidential election was on Sunday (June 2), with far-reaching implications for the natural gas market. For longer term trends in the Mexico natural gas market, NGI reviewed some of the first quarter of 2024 earnings calls of key players in the industry.
As for a more recent update, Claudia Sheinbaum of the Morena party won the presidency in a landslide. Natural gas imports from the United States are forecast to continue to increase under the Sheibaum sexenio, or six-year term, and it is expected state utility Comisón Federal de Electricidad (CFE) would maintain its grip on developing infrastructure for supplies over the private industry. Industry expert Eduardo Prud’homme recently told NGI in an episode of Hub & Flow there likely would be “no dramatic change” from the previous administration.
Sempra (SRE) – Sempra’s CEO Jeffery Martin said Mexico is “a market with over 130 million consumers. When I became CEO in 2018, it was the 15th largest economy in the world. Today, the [International Monetary Fund] has it ranked as the No. 12 economy in the world and PricewaterhouseCoopers now forecast it will be No. 7 in the world by 2040. It’s also our largest trading partner with an energy network that’s highly integrated with the United States.” NGI estimates U.S. gas exports to Mexico could rise from 6 Bcf/d in 2023 to 9 Bcf/d in 2030.
Meanwhile, Energía Costa Azul LNG Phase 1 is roughly 80% complete and remains on-target to start commercial operations in the summer of 2025.
TC Energy Corp. (TRP) – Projects continued to progress in Southern Mexico. TC Energy noted offshore pipe installation for its 1.3 Bcf/d Southeast Gateway project is now more than 70% complete and remains on schedule for a 2025 in-service date. TC Energy management noted that weather is the main risk. The National Oceanic and Atmospheric Administration (NOAA) is predicting eight to 13 hurricanes and between 17 and 25 named storms between June 1 and November 30, which is higher than normal. TC Energy also mentioned the southern section of the Villa de Reyes pipeline is targeted for mechanical completion in the second half of 2024, and Engie SA announced that it is increasing capacity on the Mayakan Pipeline in the Yucatan Peninsula.
Oneok Inc. (OKE) – On the other hand, Oneok management made no mention of the Saguaro Connector during its 1Q2024 earnings call prepared commentary. The project last appeared in the company’s January 2024 investor relations (IR) update. It wasn’t in the March 2024 IR update, nor in the 1Q2024 earnings slide deck. In its 2023 10-K filing, Oneok mentioned the final investment decision (FID) on the Saguaro Connector pipeline is expected by mid-year 2024, which is a mere four weeks from now. The lack of any reference to Saguaro Pipeline in Oneok’s materials is noteworthy, as IR presentations are sales documents that are designed to highlight any positive developments and opportunities that could have a material impact on future stock price. Furthermore, no one from the sell-side analyst community asked about it during the 1Q2024 call. Perhaps this was an oversight, or maybe Oneok still expects Saguaro to reach positive FID, but no longer believes it would have a material impact on its financials. It also could just be a case where Mexico Pacific is pushing back its own FID. Regardless, failing to even mention this project is somewhat curious.
Silverbow Resources Inc. (SBOW) – It’s rare to hear a company explain why a proposed merger didn’t go through, unless it was a hostile takeover, or there was just a massive difference in opinion. The latter certainly seems to be the case in the now defunct Silverbow Energy-Kimmeridge Energy Management Co. LLC tie-up. In case you missed it, Silverbow ultimately agreed to tie up with Houston-based Crescent Energy Co. But regarding the failed Kimmeridge Texas Gas LLC (KTG) merger, Silverbow CEO Sean Woolverton said, “one of the things that we struggled with the KTG proposal is we haven’t been drilling gas down in Webb County or limited amounts for the past two years. It just doesn't compete for capital in a $2.50 world. In fact, I think KTG may be one of the only companies down there drilling. Others have all pulled their rigs out.” Webb County, TX is the main feeder area for the Nueva Era Pipeline that serves Monterrey. As demonstrated in the chart below, pipeline scrapes in Mexico are not always reliable, given the number of zero days – although it’s certainly possible there were operational issues on those zero days as well – and, secondly, gas flows into Nueva Era have been in a slight decline since May 2023. A reduction in drilling in Webb County probably is not likely to help matters.
The overall average rig count in Latin America came in at 167 in 1Q2024, down 11 year/year. However, there are three countries where the year/year rig count was up by more than one – Mexico (plus 10), Brazil (plus five) and Venezuela (plus two). Venezuela is up two because there are now two rigs there, versus none a year ago. Mexico is increasing its hunt for oil, but that is likely its primary goal, as the country is running zero gas-targeted rigs. The country continues to rely on U.S. imports and associated gas production. Same story in Brazil, which also is 100% focused on oil. Argentina has dropped nine oil-directed rigs year/year, but it’s the only country in Latin America that has seen an increase in gas-focused activity, with three more rigs in the 1Q2024 than the prior year. Expect activity to increase there, as Nabors Industries Ltd. is sending over three rigs to the country, two rigs in 2024 and another next year. Argentina is also experiencing one of its coldest winters in the last 50 years, which could likely support natural gas-focused drilling as well.
Also noteworthy moving forward could be developments in Suriname. There were no rigs running there during the 1Q2024, but APA Corp. expects to reach an FID later this year. Sergio Chapa from Poten Partners noted at an industry conference earlier in May that Suriname could become a liquefied natural gas exporter in time.
Also noteworthy moving forward could be developments in Suriname. There were no rigs running there during the 1Q2024, but APA Corp. expects to reach an FID later this year. Sergio Chapa from Poten Partners noted at an industry conference earlier in May that Suriname could become a liquefied natural gas exporter in time.
