Wall Street Journal – by Erin Ailworth
The growing glut of U.S. natural gas is helping to power a manufacturing boom in Mexico.
Natural-gas exports across the southern border have risen 11% so far this year, to two billion cubic feet a day, according to Bentek Energy, an analytics company based in Denver.
And that flow of gas could double in the next few years, analysts say. Companies have announced plans for at least seven new pipelines to take gas across the border from Texas and Arizona, including one expected to start transporting fuel at the end of the month.
The increasing flow of gas is easing a supply shortage in Mexico, where fuel is costly and industrial demand is booming in industries including electricity production, petrochemicals and auto manufacturing, which has roughly doubled since 2009.
The exports are also helping to reduce the overabundance of gas drillers that are pumping in areas such as the Eagle Ford Shale in South Texas, where gas is trading for less than the U.S. benchmark.
While Mexico has significant shale resources of its own, its energy companies have lacked the expertise and desire to tap them, analysts say. The country has been meeting its fuel needs in part by importing liquefied gas that can cost three times as much as piped-in gas from the U.S.
“The Mexicans have an incentive to import U.S. gas because it’s basically dirt cheap for them compared to other sources of energy,” said Sandy Fielden, an analyst at RBN Energy LLC in Houston.
Eventually Mexico is expected to start producing its own gas as its energy industry—long run by national monopolies—is opened to competition over the next several years. But in the meantime, importing a flood of cheap natural gas from the U.S. should help ease public skepticism about the benefits of Mexico’s new, more free-market energy policy.
Mexican Energy Minister Pedro Joaquín Coldwell says that switching to U.S. gas from fuel oil and diesel is likely to bring down electricity costs for industry and consumers and boost the economy.
Mexico will be importing roughly two-thirds of its gas from the U.S. within the next two decades, according to projections from Ixchel Castro, an energy analyst for the consultancy Wood Mackenzie.
A large source of demand is the Mexican automotive industry, which produced nearly three million vehicles in 2013. Several auto makers have opened new plants in Mexico recently, or announced plans to do so. The latest is South Korea’s Kia Motors Corp., which unveiled plans late last month to build a $1.5 billion assembly plant near the U.S.-Mexico border.
Honda Motor Co. 7267.TO +1.11% and Mazda Motor Corp. 7261.TO +1.58% opened new manufacturing plants in Guanajuato, a state in Central Mexico, earlier this year. Plants being built by Volkswagen AG VOW.XE -1.26% ‘s Audi, as well as a partnership between Daimler AG and the Renault-Nissan Alliance, expect to make cars in 2016 and 2017. BMW AG BMW.XE -1.09% has said it will open a new plant in Mexico by 2019.
The new operations will help Mexico’s auto industry produce more than five million vehicles by 2020, IHS analysts predict.
Mexico’s electricity generators also will drive much of the demand, as they convert plants that run on fuel oil to burn gas to create power. Nearly 75% of the growth in the country’s gas consumption is projected to come from the electric-power industry between now and 2027, according to a report from the U.S. Energy Information Administration that cites Mexico’s energy ministry.
At the same time, building gas and oil pipelines in the U.S. has been difficult, with projects routinely facing opposition from communities and environmentalists. That has U.S. companies looking across the border.
“Mexico is an exciting market, now and for the foreseeable future,” said Richard Wheatley, a spokesman for Kinder Morgan Inc., a Houston-based company whose pipelines carry most of the U.S. gas flowing to Mexico. The company’s new $200 million, 60-mile-long Sierrita line will transport some 200 million cubic feet of gas a day from outside Tucson, Ariz., to Sasabe, Ariz., at the Mexican border, when it goes into service later this month. From there, it will connect to a $1 billion network of lines in Mexico being built by a Sempra Energy SRE -0.84% subsidiary, IEnova.
Rival pipelines are on the drawing boards. Howard Midstream Energy Partners LLC of San Antonio recently asked federal regulators for permission to build a pipeline in Webb County, Texas, that will carry as much as 1.12 billion cubic feet of gas a day to Mexico. Because the pipeline would cross an international border, it needs a permit from the U.S. government, but experts say it is unlikely to run into the permitting delays that have stalled the Keystone XL pipeline from Canada.
Mexico’s national utility, the Comisión Federal de Electricidad, or CFE, is seeking bids for three natural-gas pipelines that would originate in the U.S.: two from the Waha gas hub in West Texas, and one from the community of Ehrenberg in Arizona. The utility also recently struck a deal with Energy Transfer Partners LP to bring additional gas supplies to Mexico from Texas; the Dallas company has said it will construct two new pipelines to help handle the flow.
Mexico’s state-controlled oil company, Petróleos Mexicanos, or Pemex, is overseeing construction of a $3.2 billion pipeline dubbed Los Ramones, which will stretch from the Eagle Ford Shale region in South Texas to Guanajuato in Central Mexico.
Raphael Barreau, vice president of business development for GDF Suez SA,GSZ.FR -0.84% the French company building part of the pipeline, said it should be moving gas to Central Mexico by the end of 2015.
—Laurence Iliff contributed to this article.
http://online.wsj.com/articles/u-s-natural-gas-exports-fuel-mexican-manufacturing-boom-1410132721
Say hello to my old job for me