There has been much discussion in Oil & Gas Journal lately about soaring demand for natural gas. The shortage is not limited to the US but has also become a problem in Mexico.
When compiling data used in the Forecast & Review special report, which begins on p. 66, this editor noticed quite a change taking place with gas imported into the US from Mexico. Energy Information Administration figures showed that volumes coming to the US from Mexico fell from a total of more than 54 bcf in 1999 to just 4.71 bcf for the first 4 months of 2000 and then to nothing. Mexican domestic demand for gas no longer allowed for exports.
This phenomenon-and how it relates to the need for increased gas production in Mexico-was featured in a recent issue (OGJ, Jan. 22, 2001, pp. 18 and 70).
Mexico's gas deficit
Petroleos Mexicanos figures show that gas production in Mexico dipped last year to an average 4.69 bcfd from 4.79 bcfd in 1999, while demand is estimated to have grown as much as 10%.
EIA estimates that Mexico's imports of gas from the US moved up quite a bit last year. The Coral Mexico Pipeline, a new, bidirectional line, began sending gas to Mexico in October.
With demand for natural gas in the US as strong as it is, it is hard to believe that Mexico can continue to rely on imports from the north much longer.
Mexico's growing economy
The roots of the gas shortage lie in the strong economic growth that Mexico is experiencing, according to the latest economic outlook by the Organization for Economic Cooperation and Development.
The report explains that Mexico's growth was assisted not only by the continued expansion of the US economy-which buoyed exports of goods-but also by lower inflation. It further suggests that the economic climate is right for President Vicente Fox to implement reforms to enhance competition in the marketplace and to overhaul the electric utility sector.
Gross domestic product growth in Mexico reached nearly 7% last year and is expected to wane to a more sustainable rate of around 5% this year and next. The expansion has allowed for job creation and increases in real wages, bolstering household income and allowing private consumption to grow 8% last year.
Inflation has dropped to less than half the 1997 rate of nearly 20% on the strength of the peso and tighter monetary conditions.
Short-term interest rates fell in late 1999 and early 2000, then reversed. The central bank, determined to keep inflation in check, announced that it will maintain tight monetary conditions and is not expected to lower the CETES (Treasury) rate in the short-run. The goal of the central bank is to bring down Mexico's inflation rate close to that of its main trading partners in the next 2 years.
A combination of strong demand and a favorable exchange rate for the peso led to a swell in imports-to the extent that even a boost in revenues from high oil export prices did not offer much relief to the trade deficit.
Oil-related receipts, which according to the OECD account for a third of Mexico's budget revenues, gave the country a windfall last year, although revenue from privatization efforts failed to meet projections.
Need for reforms
Meanwhile, demand for gas from the electric power and industrial sectors is growing, adding to the need for energy reforms.
Additions to Mexico's gas-fired electric power generation capacity are planned, but new investment and restructuring are still necessary.
President George W. Bush, whose first international trip since taking office is expected to be to Mexico in February, has proposed an energy alliance with Mexico and Canada that would likely target, among other issues, privatization and capital investment in Mexico.
