Energy Stat of the Week by J. Marshall Adkins

Energy Stat: Exports to Mexico Are a Small Silver Lining in an Otherwise Bleak Outlook for U.S. Gas

March 19, 2018

We often hear the question: is there any hope for U.S. natural gas prices? The short answer: no, there isn't. But even though the central message of our gas thesis remains bleak, there are some trends that are keeping the story from becoming even worse. One such trend is U.S. gas exports to Mexico. While LNG exports get disproportionately more attention, pipeline sales to Mexico have been a much more needle-moving driver of U.S. gas demand in recent years. In this Stat of the Week, we will address the key issues relating to Mexico as a market for U.S. gas: 1) growth of gas usage in Mexico’s electric power sector, partly offset by wind and solar penetration; 2) decline in Mexico’s domestic gas production amid underinvestment, boosting the import requirement; and 3) the ability of midstream infrastructure to cope with rising cross-border gas flows, notably from the Permian Basin.