The three biggest natural gas corridors in Mexico are affected by the freezing wave in Texas; IHS Markit specialists informed this Monday afternoon, via a remote conference.
As we reported previously, a freezing storm in Texas spurred a series of blackouts to balance the supply/demand of electricity. Texas grid operator, ERCOT, urged population to lower their consumption as it was of help to cope with the supply disruption.
Firstly, Federal electricity Commission (CFE) in Mexico, the state-owned company, announced in the morning that Texas had suspended the natural gas supply; as prices increased nearly 5000%, going from $3 per BTU, to $200, and in some cases $600 dollars per BTU.
Consequently, several northern states of Mexico had disruptions on their electricity supply; Sinaloa, Sonora, Durango, Chihuahua, Saltillo y Nuevo Leon suffered outages. Then, to cope with the shortage, CFE injected more gas from minor power plants (coal and fuel-fired) from Chihuahua and Nuevo Leon.
“The three main corridors in Mexico, the Ramones pipeline, also the Maritime pipeline and the Ojinaga – Encino connection are the most affected;” said David Crisostomo, Associate Director at IHS Markit.
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Mexico, highly dependent on U.S. gas
Nevertheless, Adrian Calcaneo, Director for Latin America, and oil & Gas specialist in HIS Markit, highlighted “the damages are not structural. This is not about a pipeline being damaged physically, but this is about contracts; about commerce and the supply-demand rule.”
On the other hand, Crisostomo underlined the relevance of this event. “As of yesterday, the supply fall on the Mexican side was of around 6 million cubic feet of gas. Considering that Mexico imports almost 65% of its total demand from the U.S., the consequences for Mexico are palpable and also reveal the enormous dependance that our sector has.”
Moreover, the economic hit for Mexico will be around the $20 billion pesos (around a billion dollars), due to the skyrocketing increase of prices. “Firslty, scarcity and secondly, the overwhelming demand are the main factors for the increase. It doesn’t matter if contracts for gas in Mexico are long-term. Usually, the price in those contracts sets according to the spot prices; therefore, in the face of an event like this, prices go up, hitting the gas buyers in Mexico,” underlined Crisostomo.
Finally, Crisostomo remarked that Mexico should invest more in storage capacity; “being almost completely dependent of U.S. imports; and also without a robust investment in storage capacity and infrastructure, gas sector in Mexico will remain fragile and uncertain.”