North American natural gas prices gained some momentum this week amid lingering summer heat and lower production in the United States.
On Thursday, the New York Mercantile Exchange contract for October was trading at around $2.250/MMBtu.
Meanwhile, Mexico imported 7.268 Bcf of natural gas from the United States via pipeline on Thursday, another strong figure as the high-demand summer months wind down.
LNG Pause Over?
The global LNG market got a jolt this week as U.S. regulatory authorities granted a non-free trade agreement (non-FTA) permit to New Fortress Energy Inc. (NFE) and its Fast LNG facility offshore Altamira, Mexico.
It was the first such green light granted by the U.S. Department of Energy (DOE) since the Biden administration suspended new non-FTA permits for liquefied natural gas export facilities in February.
“DOE is continuing to monitor market developments closely as the impact of successive authorizations of LNG exports and re-exports unfolds,” agency staff wrote in the order. “DOE also acknowledges that proposals to re-export U.S.-sourced natural gas in the form of LNG from Mexico or Canada to non-FTA countries raise public interest considerations that are not present for domestic exports of LNG.”
In August, the NFE project became the first in Mexico to ship a commissioning cargo. As of Thursday, the Energos Princess LNG vessel was entering the Gulf of California, heading for the La Paz anchorage zone in Mexico’s Baja California Sur, according to Wood Mackenzie’s vessel-tracking data.
The tanker was targeting Pichilingue terminal for delivery. The vessel was said to likely be around 30% filled with gas originating in Texas, which would equate to about 800 MMcf of LNG from Altamira, according to Wood Mackenzie. Although this particular LNG shipment went from one coast of Mexico to the other, with the new permit, NFE may now ship supply to anywhere in the world.
More LNG Permits To Come?
The permit pause is being watched closely by other LNG export projects in Mexico, all of which plan to source their natural gas from the United States.
“I think the DOE is proceeding in a guarded manner with respect to issuing LNG non-FTA agreements,” said NGI’s Pat Rau, senior vice president of research & analysis. “I don't know whether DOE is progressing on first in, first out basis with these permit requests, but perhaps they chose the New Fortress project because that company sells most of its LNG to FTA countries.”
The Sur de Texas-Tuxpan pipeline has excess capacity, and “approving this facility for non-FTA exports doesn't require any future infrastructure build,” he said. “Perhaps also the DOE is trying not to be overly political ahead of the November elections. NFE is in Mexico, not the United States, and is also on the smaller side in terms of U.S.-fed LNG export projects. Granting a non-FTA export project to that is certainly less impactful from a volume standpoint than some of the big proposed projects along the U.S. Gulf Coast.”
Executives at Flex LNG Ltd. said in a recent earnings call that the upcoming election in the United States could impact the LNG permit pause.
Flex LNG CEO Oystein Kalleklev said if former President Donald Trump were to win, the permit pause “will be repelled quite quickly.” If Kamala Harris were to win, “it will take some more time.”
Rau said regardless of who wins the election in November, “I do expect LNG approvals to return to the forefront soon thereafter, which can only help the potential LNG export projects in Mexico that will receive feed gas from the United States.” Recent offtake awards at Mexico Pacific Ltd. and Amigo LNG “certainly suggest the industry isn't all that concerned about the ban.”
Mexico Reform
This week, Mexico’s lower house approved a constitutional overhaul presented by outgoing President Andrés Manuel López Obrador. The country’s senate is now set to debate the legislation. As of this month, both houses of congress are majority controlled by López Obrador’s Morena party.
One proposed change would lead to Supreme Court judges being elected by popular vote. The outgoing president is also seeking preferential treatment for Comisión Federal de Electricidad (CFE) and state oil firm Petróleos Mexicanos (Pemex). There is also a proposed move to eliminate energy sector regulators Comisión Nacional de Hidrocarburos (CNH) and Comisión Reguladora de Energía (CRE). The outgoing president also wants to scrap competition watchdog Cofece.
“Everyone is uneasy,” natural gas consultant Santiago Villareal told NGI’s Mexico GPI. “Morena will have the power to elect judges and won’t be impartial.”
During the outgoing administration, local judges upholding the rule of law were able to provide protection to private and multinational firms who felt they were being treated unfairly by the government. That could change if the reform occurs, analysts and critics have said.
Market Shakeup
One other change that is occurring, according to Villareal, is a shift in the natural gas market dynamic in Mexico.
Natural gas distribution firms Naturgy SA and Engie SA “are growing so fast, they are utilizing their power” as local distribution companies, or LDCs, Villareal said. He said in some cases, medium and large consumers interconnected with their systems were being given 60 days to pay their accounts.
“Small marketeers will have a lot of trouble competing and that could be the new way of doing business in Mexico,” Villareal said. “But we need to wait a bit longer and see what will happen with the new administration.”
López Obrador protégé and President-elect Claudia Sheinbaum becomes the country’s next head of state at the start of October.
Mexico Prices
In Mexico on Wednesday, natural gas cash prices at Los Ramones rose by 20.3 cents day/day to $2.466, according to NGI data. Monterrey via the Mier-Monterrey system was up 20.2 cents to $2.250. Tuxpan in Veracruz via Cenagas saw the spot price rise 20.2 cents to $3.154.
Out West, the Guadalajara natural gas price rose by $1.041 to $2.248 on Wednesday. Farther north in El Encino, prices via Tarahumara were minus 61.0 cents, $1.880 higher than the previous day.
On the Yucatán Peninsula, the cash price at Mérida was $3.974 on Wednesday, up 20.2 cents.
U.S. Storage
On Thursday, the U.S. Energy Information Administration (EIA) reported a 13 Bcf storage injection for the week ended on Aug. 30. The figure sent natural gas prices higher.
But boiling temperatures in Texas saw the South Central region, close to Mexico pipelines, post a steep withdrawal. The region saw a 5 Bcf decrease in salt stocks and a drop of 9 Bcf in nonsalts for a total decrease of 14 Bcf.
For the week ended Aug. 30, total working gas in the U.S. South Central region stood at 1,105 Bcf, up from 1,039 Bcf for the same time one year ago. The figure was 96 Bcf higher than the five-year average of 1,009 Bcf.
