LNG shipment cancellations from Gulf Coast will be offset for production by rise in pipeline gas for Mexico

Tuesday, 14 July 2020
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The cancellation of LNG cargoes from Gulf Coast export plants amid over-supply and a price collapse is set to be offset by an increase in pipeline exports to Mexico, the largest component of US natural gas trade and a key take-away portion of still high production levels.

These pipeline exports will rise with the completion of the southern-most segment of the Wahalajara system, the Villa de Reyes-Aguascalientes-Guadalajara (VAG) pipeline, according to a report from the US Energy Information Administration.

The VAG pipeline began operations in June 2020, connecting new demand markets in Mexico to US natural gas pipeline exports.

“Exports of natural gas to Mexico by pipeline are the largest component of US natural gas trade, accounting for 40 percent of all US gross natural gas exports in 2019,” the EIA report noted.

Mexico also remains the second-largest recipient after South Korea of US LNG shipments.

Since the Cheniere Energy Sabine Pass plant came on stream in February 2016, the Mexicans have received over 150 US LNG shipments.

However, in recent months LNG deliveries to Mexico have fallen after exports to China resumed and more cargoes in the over-supplied market were pointed at Japan and India, as well as European nations, even at historically low prices.

The Wahalajara system is a group of new pipelines that connects the Waha hub in western Texas, a major supply hub for Permian Basin natural gas producers, to Guadalajara and other population centres in west-central Mexico.

“With the 0.89 billion cubic feet per day (Bcf/d) VAG pipeline entering service, EIA expects utilization of the Wahalajara system to quickly ramp up, resulting in increased US natural gas exports to Mexico out of western Texas and additional takeaway capacity out of the Permian Basin,” explained the EIA.

After the Sur de Texas-Tuxpan pipeline was completed in September 2019, natural gas exports to Mexico reached a record 5.5 billion cubic feet per day in October 2019.

Exports on this line from the border at Brownsville in Texas to the southeastern state of Veracruz in Mexico averaged 0.6 Bcf/d during the last quarter of 2019, or about 20 percent of the pipeline’s capacity.

Overall natural gas exports from this region only increased by 0.2 Bcf/d from 2016 to 2019 because of delays in pipeline construction in Mexico.

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