U.S. exports to Mexico have touched record highs multiple times over the last 30 days, as flows through the West Texas corridor have been buoyed by the completion of pipelines connected to the Fermaca system within Mexico.
The so-called “Wahalajara” system connects the Waha hub in West Texas to Guadalajara in west-central Mexico. Wahalajara consists of two pipelines, the Tarahumara Pipeline (Purple line) and the Roadrunner Pipeline, which together deliver West Texas gas to the Fermaca pipeline system, which is made up of the El Encino-La Laguna, La Laguna-Aguascalientes, and Villa de Reyes-Aguascalientes-Guadalajara pipelines. The pipes are named according to their origins and destination.
The increase in West Texas gas flows is largely responsible for the increase in U.S. exports to Mexico. In July U.S. total gas flows to Mexico reached a record high of 5.7 Bcf/d. While flows have since decreased, they are still averaging 5.6 Bcf/d in August, a y-o-y increase of 200 MMcf/d.
Gas flows leaving West Texas have set record highs over the last two months, first in June at 737 MMcf/d, then in July at 837 MMcf/d, according to flows observed on PointLogic. This is a year-over-year increase of nearly 200 MMcf/d, which is also the increase in total exports.
Increased pipeline capacity within Mexico has enabled more exports to flow. The most recent pipeline on the Fermaca system to be completed was the 0.89 Bcf/d Villa de Reyes-Aguascalientes-Guadalajara (VAG) pipeline (yellow line, #18). The pipeline connects to the La Laguna – Aguascalientes pipeline (red line, #16), allowing Permian gas to reach the major demand center of Guadalajara, Mexico’s second-largest city.
Connected to other pipeline projects on the Wahalajara system, the Villa de Reyes-Aguascalientes-Guadalajara Pipeline can deliver gas to power plants and industrial consumers and displace expensive LNG. Waha gas prices have touched zero several times over the last two years; it is hard to imagine a cheaper supply source.
However, no gas flows have been recorded on the VAG pipeline or the La Laguna-Aguascalientes pipe upstream of it, according to Fermaca’s Electric Bulletin Board (EBB). The VAG pipeline remains out of service pending resolution of arbitration with Mexico’s state power company CFE.
While 1 Bcf/d of export capacity has been mechanically completed this year, the increase in actual flows is largely dependent on the utilization of infrastructure on the Fermaca system. Historically, pipelines built to carry U.S. gas to Mexico have been underutilized as downstream infrastructure that would allow the gas to reach the major downstream markets have been delayed.
Still, the low cost of Waha gas bodes well for West Texas exports to Mexico. Once the issues are resolved downstream, cheap U.S. gas will have access to a welcoming market.