Natural Gas Exports to Mexico Dip; Quick Recovery Unlikely

Article excerpt

HOUSTON _ This time last year, U.S. natural gas marketers were sizing up Mexico as a big expansion market.

This spring, however, natural gas exports to Mexico are languishing, and some industry experts are wondering if their growth forecasts weren't overly optimistic.

Exports to northern Mexico dropped from about 300 million cubic feet a day early this year to as low as 70 million early this month when natural gas prices moved up to $2.75 per thousand cubic feet.

Spot prices in mid-May moderated to around $2.30 per thousand cubic feet, and export volumes to Mexico have since rebounded to about 120 million cubic feet a day.

Gas marketers in Houston say they're not expecting exports to recover entirely any time soon.

Traders blame the slump on rising prices that made U.S. natural gas less competitive. To make matters worse, Mexico shut three big ammonia plants that used imported natural gas. Ammonia is widely used for fertilizer.

A gas trading official with Pemex, Mexico's state oil company, said with ammonia prices slumping and gas costs rising, it made sense to shut down some of the plants for maintenance.

Those shutdowns have reduced demand for imported gas from the United States by 150 million cubic feet, the Pemex official said.

When those plants come back on line depends largely on what ammonia prices do, he said.

Other industry sources say some of the export sag is the result of Mexican industrial plants switching from gas to cheaper residual fuel oil, a plentiful byproduct of some of Mexico's relatively low-tech refineries. …