US exports of natural gas by pipeline—the largest component of US natural gas trade, accounting for 40% of all US gross natural gas exports in 2019—will increase with the completion of the southern-most segment of the Wahalajara system, the Villa de eyes-Aguascalientes-Guadalajara (VAG) pipeline, according to US Energy Information Administration forecasts. VAG began operations in June, connecting new demand markets in Mexico to US natural gas pipeline exports.
The Wahalajara system is a new set of pipelines that connects the Waha hub in western Texas (the main supply hub for gas producers in the Permian basin) to Guadalajara and other population centers in central and western Mexico. The system provides US natural gas to meet the growing demand of the Mexican power and industrial sectors. With the launch of the 0.89 bcfd VAG pipeline, EIA expects the utilization rate of the Wahalajara system to increase rapidly, resulting in increased US natural gas exports from western Texas to Mexico and more export capacity outside the Permian basin.
Mexico has been expanding its natural gas pipeline system since 2016, thus supporting the continued growth of US natural gas exports. Much of the growth came from natural gas exports from southern Texas, as the existing US pipeline infrastructure was expanded and the Los Ramones Phase II pipeline in central Mexico was completed.
Since the Sur de Texas-Tuxpan pipeline was completed in September 2019, US natural gas exports to Mexico reached a record 5.5 bcfd in October 2019. US natural gas exports from the border at Brownsville, Tex., to the southeastern state of Veracruz in Mexico averaged 0.6 bcfd in the last quarter of 2019, which accounted for some 20% of pipeline capacity.
Overall, due to delays in Mexico’s pipeline construction, US natural gas exports from the region increased by only 0.2 bcfd from 2016 to 2019. Two regional pipelines were completed in 2017 but did not reach capacity:
- The 1.1-bcfd Comanche Trail pipeline which delivers natural gas to Mexico from San Elizaro, Tex.
- The 1.4 bcfd Trans-Pecos pipeline, which crosses the border at Presidio, Tex.
The Comanche Trail pipeline has been delivering an average of 0.1 bcfd of natural gas to Mexico since the San Isidro-Samalayuca pipeline entered service in June 2017. Pipeline operators do not expect flows to rise until the 0.47-bcfd Samalayuca-Sásabe pipeline in Mexico is completed in either late 2020 or early 2021.
The Trans-Pecos pipeline, the US segment of the Wahalajara system, did not transport significant volumes of natural gas until October 2018; it is currently only operating at 10-15% of total capacity. Most of the demand centers are in southern Mexico, waiting to be connected to the VAG pipeline. Three of the project’s four pipelines in Mexico are currently in-service:
- Ojinga-El Encino: 1.4 bcfd, entered service in June 2017
- El Encino-La Laguna: 1.5 bcfd, entered service in January 2018
- La Laguna-Aguascalientes: 1.2 bcfd, entered service in December 2019
Prior to the economic impact and uncertainty associated with the COVID-19 mitigation efforts and the decline in crude oil prices, S&P Global Platts predicted that the US natural gas exports to Mexico would immediately increase by 0.3 bcfd to 0.4 bcfd on the Wahalajara system. However, given Mexico’s reduced demand for natural gas due to COVID-19 mitigation measures, growth may be slower than expected. In addition to these volumes, additional export volumes will be limited by the speed at which Mexican customers connect to the pipeline system.
These connections include new natural gas-fired combined-cycle generators and the scheduled 2020 completion of the 0.89-bcfd Tula-Villa de Reyes pipeline, which will deliver natural gas to central Mexico. Deliveries from the Wahalajara network are likely to partially displace higher-cost LNG imports into Mexico’s Manzanillo terminal, which serves markets in Guadalajara and Mexico City.
As US natural gas exports on the Wahalajara system rise and crude oil prices remain low, EIA expects the price at the Waha hub in the Permian basin, which had been steeply discounted to the Henry Hub national benchmark, to continue to strengthen.
