North American natural gas prices slumped this week as summer heat waned and supplies flooded the market.
On Thursday afternoon, North American Mercantile Exchange futures prices for September moved closer to the $2.00/MMBtu mark.
Cash prices were hammered. Henry Hub traded as low as $1.880 and averaged $1.915 on Thursday, down 20.5 cents day/day, NGI data showed. Henry Hub gas prices at $3.00 and above aren’t likely until December, according to NGI’s Forward Look.
Mexico end-users have been taking advantage of the bargain. For the past 10 days through Thursday, Mexico imported 7.37 Bcf/d of natural gas via pipeline from the United States, according to NGI calculations.
August cross-border flows of around 7.30 Bcf/d are trending higher than July flows, which clocked in at 6.98 Bcf/d.
“If the U.S. export rates ramp up for the remainder of the month, it is possible that August could beat the all-time average export record set in May,” NGI analyst Josiah Clinedinst said.
South Texas led the way over the past 10 days, exporting 4.74 Bcf/d across the southern border. Average West Texas exports meanwhile increased 0.05 Bcf/d to 1.97 Bcf/d.
RBN Energy LLC analysts said in a report this week that West Texas flows from the Permian Basin into Mexico were on the rise as negative pricing out of the Waha trading hub persisted. “Outflows to Mexico typically peak in the summer when power demand is at its highest, so outflows will likely continue to be strong this month and then taper off somewhat in the fall,” the analysts wrote.
The RBN analysts said Mexico was a bullish factor in U.S. pricing going forward. They cited New Fortress Energy Inc. and its Altamira LNG facility, which would use about 200 MMcf/d originating at the Agua Dulce Hub in South Texas.
Reform Worries
In Mexico this week, all attention was on potential constitutional reforms in the final weeks of President Andrés Manuel López Obrador’s presidency.
Justices and magistrates across Mexico went on strike over a proposed change that 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.
Analysts at Morgan Stanley and Fitch Ratings said there was reason for concern.
“We believe replacing the judicial system should increase risk,” as well as limit capital expenditures, Morgan Stanley analysts said in a note. “That's a problem as nearshoring is reaching key bottlenecks.”
Analysts at Fitch added, “We believe these reforms would, overall, negatively affect Mexico’s institutional profile, but it is too early to gauge the potential severity prior to approval and implementation.”
Mexico independent natural gas consultant Santiago Villareal told NGI’s Mexico GPI that “everyone is focusing on the reform…No one is moving a finger in terms of big contracts right now in the energy sector.”
Mexico Prices
In Mexico on Wednesday, natural gas cash prices at Los Ramones fell by 8.6 cents day/day to $2.312, according to NGI data. Monterrey via the Mier-Monterrey system was down 8.2 cents to $2.090. Tuxpan in Veracruz via Cenagas saw the spot price fall 9.4 cents to $2.843.
Out West, the Guadalajara natural gas price fell by 13.4 cents to $1.824 on Wednesday. Farther north in El Encino, prices via Tarahumara were minus 12.7 cents, 15.8 cents lower than the previous day.
On the Yucatán Peninsula, the cash price at Mérida was $3.866 on Wednesday, down 11.1 cents.
U.S. Storage
On Thursday, the U.S. Energy Information Administration (EIA) reported a 35 Bcf injection into storage for the week ended Aug. 16. The figure sent natural gas prices lower.
The South Central region, close to Mexico pipelines, saw no change week/week. The region saw a 6 Bcf decrease in salt stocks and a gain of 6 Bcf in nonsalts.
For the week ended Aug. 16, total working gas in the U.S. South Central region stood at 1,125 Bcf, up from 1,078 Bcf for the same time one year ago. The figure was 108 Bcf higher than the five-year average of 1,017 Bcf.
