Raymond James Energy Stat of the Week
by J. Marshall Adkins
Energy Stat: Is That Giant South-of-Border Sucking Sound Jobs or Natural Gas?
November 4, 2013
In the U.S. natural gas market, the gas demand drivers that grab all the headlines are liquefied natural gas (LNG) exports, coal-to-gas switching, industrial growth, and weather. While these factors do account for the lion's share of incremental U.S. gas demand, an underestimated component of U.S. gas demand growth over the past few years has been increasing gas exports to Mexico. While Ross Perot famously predicted that the North American Free Trade agreement would create a "giant sucking sound" of U.S. jobs to Mexico (Ross Perot clip), today's reality is that U.S. natural gas is the biggest thing being sucked up by Mexico. As shown in the chart that follows, natural gas exports to our southern neighbor have more than doubled from ~0.8 Bcf/d in 2010 to ~1.8 Bcf/d so far this year. This strong gas demand growth has been driven by a combination of: (1) languishing Mexican gas production since 2007 as the government focuses on reversing the oil production declines; (2) growing Mexican GDP, leading to increased residential and commercial electricity demand; and (3) Mexican industrial demand picking up as manufacturers relocate from Asia. While increasing Mexican LNG imports have satisfied some of this demand surge, U.S. pipeline operators have been called upon to make up the difference. In this week's Stat, we explain how the above factors combined to drive U.S. gas exports to Mexico higher since 2010 and will likely continue to do so in the foreseeable future.
This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.
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