Future of Texas natural gas exports to Mexico depends on NAFTA
Much ado has been made about overseas exports of U.S. natural gas. Picture the images of giant carriers pulling out of seaside terminals along the Gulf Coast, destined for Latin America or Asia through the newly widened Panama Canal.
But a quieter affair with neighboring Mexico, conducted via a growing network of subterreanean pipelines, has had an even greater bearing on the U.S. energy export market. Four years after overhauling its energy policies, Mexico has come to rely ever more heavily on inexpensive and plentiful natural gas from West Texas as its own production plummets.
It’s a serious relationship, and its future largely depends on the North American Free Trade Agreement, which makes it easier for Texas oil and gas producers to pipe their products across the border. Representatives from the U.S., Mexico and Canada met this past week in Mexico City to renegotiate the longstanding agreement, which the Trump administration has criticized as unfair.
“We have a lot at stake as NAFTA negotiations continue,” said Todd Staples, president of the Texas Oil and Gas Association, a trade group.
In 2013 and 2014, Mexico opened its energy market to foreign investment and intensified its focus on using cheaper and cleaner-burning fuel sources such as natural gas. It looked north to the United States, pledging to substantially expand its pipeline network to import natural gas for less money than it cost to produce domestically.
As a result, Mexico has emerged as one of the largest customers of U.S. natural gas — a dynamic driven by burgeoning production in Texas shale fields such as the Permian Basin. In the last several years, pipeline companies including Energy Transfer Partners, Kinder Morgan and TransCanada have begun building crossborder projects as Mexican demand surges alongside U.S. production.
“Without this boom in the U.S., border connectivity wouldn’t be what it is today,” said Adrian Duhalt, a research fellow in Mexican energy studies at Rice University’s Baker Institute for Public Policy.
Duhalt, citing Mexico’s National Hydrocarbons Commission, noted in a recent paper that Mexico’s natural gas imports almost tripled between 2010 and 2017 as its domestic production declined by more than one-third. And demand continues to escalate. The U.S. Energy Department anticipates that natural gas pipelines crossing the Mexican border will have the capacity to carry more than 14 billion cubic feet a day by the end of the year, roughly double 2015 volumes.
Texas now accounts for almost all of that capacity, and more is on the way. Though some projects, including TransCanada’s subsea line from South Texas to Veracruz, have faced regulatory delays in recent months, several new pipelines are expected to come online this year — assuming NAFTA remains intact.
“These investments are massive,” Staples said. “It’s a growing pains process, but it’s one that essential to the economic growth of Texas.”
“We have a lot at stake as NAFTA negotiations continue.” Todd Staples, Texas Oil and Gas Association