North American Natural Gas Futures Surge Amid Volatility

May contracts concluded for the prompt month for New York Mercantile Exchange natural gas futures opened with a bang Wednesday, rising 27.5 cents day/day and settling at $5.605/MMBtu while June futures gained 27.7 cents to $5.658.

After slumping to start the week, natural gas futures regained momentum similar to last week’s as volatility remained the name of the game amid uncertainty over global natural gas supplies and war in Ukraine.

Mexican imports of natural gas from the United States meanwhile were slightly down from last week. Mexico imported 5.28 Bcf of US natural gas via pipeline on Thursday, and the 10-day average stood at 5.46 Bcf/d, according to NGI calculations.

Amid surging demand for North American natural gas in Europe, Mexico’s potential liquefied natural gas export market gained traction this week.

“Right now with the rising price of gas,” Mexican President Andrés Manuel López Obrador said during a morning press conference, “how does the US, or North America, help European countries with gas so they don’t depend only on Russia? Spain doesn’t have gas, so how do we resolve this so they don’t depend on one country or one region? You need to invest in new technologies. In the Pacific, they don’t exist. There aren’t any liquefaction plants. Sempra in Ensenada… is the only one. It’s not enough,” he said.

Obrador was referring to Sempra’s Energía Costa Azul liquefaction project in Baja California, set to go online in 2024. Also this week, Sempra Infrastructure.

TotalEnergies SE announced the progress of another export project in Mexico. TotalEnergies is considering contracting about one-third of the capacity from Vista Pacífico LNG, which would be sited near Sempra’s refined products terminal in Topolobampo, Sinaloa. If the project is sanctioned, TotalEnergies could obtain around 1.3 million metric tons/year (mmty) of the terminal’s planned 4 mmty capacity.

The energy major could also take a minority equity stake in the project, as it has with other projects.

Mexico’s lower house is set to vote on its constitutional amendment in the electricity sector in the upcoming weeks. Meanwhile, this week the country’s supreme court said it would rule shortly on the legality of the amendments to the Electricity Industry Law (LIE) approved in congress last year.

López Obrador’s electricity sector policy has reached a critical juncture. The LIE seeks to give state power company Comisión Federal de Electricidad (CFE) priority over competitors in the nation’s power dispatch. The constitutional amendment, meanwhile, proposes deeper changes, including guaranteeing CFE 54% of the nation’s generation output.

The president has not shown any willingness to water down his original proposal despite lacking the votes. The constitutional reform would likely not make it through the nation’s congress.

However, if the court rules in favor of the amended LIE, it will allow the administration to advance its state-centric goals, which would be a major blow to investor confidence and US-Mexico relations.

In Mexico, NGI natural gas spot prices in the industrial northeast stayed well above $5.00 this week. On Wednesday, Los Ramones was up 9.3 cents to $5.610. Monterrey via the Mier-Monterrey system rose 9.2 cents to $5.398. Tuxpan in Veracruz via Cenagas saw the spot price rise 9.6 cents to $6.044.

In the West, the Guadalajara price rose 10.3 cents to $5.740. Farther north in El Encino, prices via Tarahumara were $4.713, 10.6 cents higher than the previous day. On the Yucatán Peninsula, the cash price at Mérida was $6.866 on Wednesday, up 10.2 cents.

Sistrangas
Mexico’s Sistrangas five-day line pack average was once again low this week, hitting 6.657 Bcf on Wednesday (March 30). This is below the optimal line pack of 6.86-7.29 Bcf needed to guarantee sufficient pressure in the system. System operator Cenagas has advised users to maintain injections and withdrawals to their contractual quantities or risk facing penalties.

Demand on the Sistrangas on Wednesday was 4.644 Bcf, up from 4.514 Bcf a day earlier. Mexico gas production fed into the system was 1.263 Bcf, down from 1.268 Bcf a week earlier.

Southeast production dominated the total, with 714 MMcf from the region injected into the pipeline system, up 6 MMcf from the previous week.

According to calculations from the Gadex consultancy, pipeline imports from the United States into the Sistrangas were 3.387 Bcf on Wednesday, up from 3.287 Bcf a week earlier. LNG imports into the Sistrangas were 20 MMcf.
US Gas Storage
On Thursday, the US Energy Information Administration (EIA) reported an injection of 26 Bcf natural gas for the week ending March 25. The print was in line with analyst expectations.

The South Central region saw an injection of 22 Bcf with an 8 Bcf build in nonsalt facilities and an increase of 13 Bcf in salts. Until Mexico develops storage capability, this is the storage system most readily available to the country.

For the week ending March 25, total working gas in the South Central region stood at 581 Bcf, down from 747 Bcf for the same time one year ago. The figure was also 140 Bcf lower than the average 721 Bcf in storage for the same day between 2018-2022, EIA said.