Mexico in talks with Texas to retain gas supply: Update
Adds reaction, operational details.
Mexico is in talks with the cold-whipped Texas state government to try to overturn a controversial gubernatorial order to divert natural gas exports to in-state power generators struggling with a severe feedstock shortage.
"We are doing our diplomatic work so that the ban does not go ahead," Mexico's president Andres Manuel Lopez Obrador said today. "We understand that they are in an emergency situation, but I do not think that closing borders is the solution."
Texas governor Greg Abbott ordered gas producers yesterday to refrain from sales outside the state through 21 February to alleviate unprecedented supply pressure caused by severe cold weather that has wreaked havoc across the state since last weekend. It is not clear that Abbott has the authority to execute such an order, which would impact LNG exports through Gulf coast terminals.
Midstream company Kinder Morgan, which typically exports over 3 Bcf/d to Mexico via several of its pipelines, declined to comment on Abbott's order.
Most of Mexico's gas imports come from Texas, where the cold snap has slashed oil and gas production in a region ill-equipped to handle snow and ice.
A complete shutdown in pipeline gas supply to Mexico would cripple power generation and industrial activity that has already been affected by curtailments of up to 61pc less gas over the past week.
The order would affect other US states as well as Mexico and so the proposal may fall through, Lopez Obrador said.
Mexico's confederation of industrial chambers said it was looking into whether Abbott's decision could violate the United States-Mexico-Canada trade agreement (USMCA).
"Even in the US the measure is being questioned since state governments cannot restrict interstate trade," Regulo Salinas, head of the chamber's energy commission, told Argus.
Salinas, who is also institutional director at steelmaker Ternium Mexico, said he does not believe Abbott's order explicitly bans exports to Mexico, but that the state is prioritizing supplying its own power generators before exporting natural gas outside Texas.
Rallying cry
But the outages and potential export ban support the president's long-term call to wean Mexico off of extensive natural gas and refined product imports.
"This episode demonstrated Mexico's vulnerability in depending on gas from Texas," CFEnergia director Miguel Reyes said today.
CFE has 24 gas purchase contracts in the US, with an annual contracted supply of 30.2 Bcf/d, well above CFE's required 2.34 Bcf/d demand, Reyes said. Mexico overall consumes about 7.5 Bcf/d of gas.
The annual Ps135bn ($6.6bn) cost of these contracts and the weakening of CFE following the 2014 energy reform have "prevented the utility from investing in required storage infrastructure," that could have mitigated the supply restrictions, Reyes said.
But CFE said today that it was ready to "meet the lack of gas from Texas if it happens." CFE has added 3,796MW of capacity in coal, diesel and fuel oil powered plants since 15 February to replace the drop in gas-fired power and expects to add additional nuclear power capacity by 20 February.
Expected power demand is forecast to hit 38,000MW of installed capacity today and CFE will have around 30,000MW of generation capacity in operation "almost enough to meet demand," CFE director of generation Carlos Morales said.
Yet power cuts during peak evening hours (7pm-12pm ET) are expected to continue during the coming days.
The scheduled outages should conclude by 20 February — as long as the Texas export cuts do not go ahead — once LNG cargoes ordered by CFE arrive into the Manzanillo and Altamira terminals by tomorrow, Reyes said without providing more details.
Pipeline operator TC Energy still has an active force majeure notification on its 2.6 Bcf/d Texas-Tuxpan pipeline, with gas imports down yesterday to 565mn cf/d, compared with 992mn cf/d on 11 February. The Texas-Tuxpan pipeline is the main gas supply line to Mexico's central, Gulf coast and southern states.
Pipeline company Fermaca also issued critical alert notices on its 5 Bcf/d Wahalajara system that draws gas from Waha, Texas, to the central Mexican cities of Guadalajara and Aguascalientes but it has not updated flow information.
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