Published to LuthINformed, Issue X (September 7, 2016)
Natural Gas Exports to Mexico…
Fewer imports from Canada – and greater exports to Mexico – mean that the U.S. is poised to become a net exporter of natural gas either this year – or next. In fact, the amount of natural gas that the U.S. transports to Mexico has risen precipitously since 2000 – and more than quadrupled since 2010 (chart below). By 2019, fourteen new pipelines will more than double current capacity to nearly 15 Bcf/day. And while selling natural gas at higher prices on the world market increases profits for U.S. producers, the price gap between the United States and the rest of the world shrinks, eroding some of the benefits to U.S. consumers and manufacturers.
Falling MX Power Rates…
As the chart above shows, electricity tariffs for industrial users in Mexico are falling relative to US rates. In 2015, the premium has fallen from 47% to 29%, with the gap expected to narrow further still in the years ahead. Mexican energy prices may fall further since some manufacturers will soon access natural gas from their own pipelines, allowing them to produce their own electricity. Cheaper natural gas and lower power prices can only be good news for Mexico’s manufacturing sector and overall economy.
The Impact of Greater Exports…
The dynamics of precisely assessing the impact of higher natgas exports are complicated. In a recent report, the Center for Energy Studies found that, in every case, greater exports raised domestic prices “somewhat” and lowered prices internationally. The report goes on to say “the positive impact of higher U.S. gas production exceeds the negative impacts of higher domestic prices associated with increased exports.” The chart above shows these higher export prices. Good news for U.S. producers after last years warm winter, a glut in storage levels and projections for sustained low prices.
Natural Gas Outlook…
The latest inventory report (above) shows a net increase of 51 Bcf vs. the previous week. Stocks were 238 Bcf higher than this time last year and 334 Bcf above the five-year average. Current natural gas strip prices are listed below:
12 month strip = $2.999
24 month strip = $3.001
Cal Year 2017 = $3.054
Cal Year 2018 = $2.949
(all prices NYMEX only; A/O 9/6/16)
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