Here at Money Morning, Dr. Kent Moors and others have spoken often about how the coming liquefied natural gas (LNG) export boom will be a huge profit windfall for natural gas companies. LNG exports should begin in earnest from this country in 2015.
But there is a natural gas export boom that is occurring right under many investors' noses.
Vast amounts of U.S. natural gas are currently being shipped via pipelines to many experts' favorite emerging country.
In fact, Money Morning Global Investing Specialist Martin Hutchinson called investing there a "100-year opportunity."
The country in question? Our neighbor to the south: Mexico.Mexican Nat Gas Usage Surges
Natural gas consumption in Mexico soared 160% since 1990. Since 2007 alone, gas usage in the country jumped nearly 17%.
Much of the increased demand is driven by the increase in power fueled by natural gas. In 2000, only 20% of the country's power generation was driven by natural gas. But by 2007, that number had already risen to 50% and has risen even further since.
Mexico is expected to add 28 gigawatts of new electric power capacity by 2027. That may add to the country's natural gas needs by more than 5 billion cubic feet a day.
This is significant since gas production from Mexico's state-owned oil and gas company Pemex plummeted in recent years.
This leaves Mexico with one solution. . .imports.
Total natural gas imports hit 767 billion cubic feet last year, which is about 30% of Mexico's total supply. And while Mexico does import some LNG, an increasing amount of its gas needs is being met by cheap natural gas from the United States.
According to the U.S. Energy Information Administration, U.S. exports of natural gas rose by 24% in 2012 to 1.69 billion cubic feet per day. This equates to 80% of Mexico's gas imports and meets about 20% of the country's demand. It is also the highest level of exports since data collection began in 1973.
An interesting side bar here is that 60% of those U.S. gas exports to Mexico come from pipelines emanating from Hidalgo County, TX, with the gas coming from the Eagle Ford shale formation. This may be a plus for gas producing companies in the region such as EOG Resources Inc. (NYSE: EOG).Natural Gas Companies in Prime Spot
The real investment story here is not the multinationals who are benefiting from their operations in Mexico powered by cheap U.S. natural gas, but instead the import surge that would benefit U.S. natural gas companies...
The Mexican government, along with some U.S. natural gas companies, have major plans to expand gas shipments to Mexico in the years ahead.
The takeaway for investors is that, at the moment, Mexico is importing about 3% of total U.S. gas production - but that could more than triple, with Mexico absorbing perhaps 10% of U.S. production in the near future.
Expansion here is easier than building LNG export facilities because the regulatory process is very different. One major difference, for example, is that the U.S. already has a free trade agreement with Mexico. A lack of free trade agreements is often a stumbling block with gas exports to other countries.
Existing capacity to transport natural gas from the U.S. into Mexico is about 3.5 billion cubic feet per day according to the Mexican government.
New pipeline projects expected to completed by the end of 2014 should add another 3.5 billion cubic feet of capacity, doubling capacity. There are additional pipeline projects coming onstream in the years after that, too.
A direct beneficiary of all of these pipeline projects will be the pipeline companies.
One new pipeline system is the Northwest pipeline system. One part of this system - the Mazatlan Pipeline - will be built and operated by TransCanada (NYSE: TRP). Contracts for another part of the Northwest system were awarded to Sempra Energy (NYSE: SRE).
The first phase (Sempra) will come online in 2014. The second (Sempra), third (Transcanada) and fourth (Transcanada) phases will come online in 2016.
Another major new gas pipeline system is the Los Ramones pipeline. It is Mexico's biggest energy infrastructure development in the last 40 years and will be controlled by PEMEX. It will stretch through several Mexican states with the first phase going into service in late 2014 and the second phase coming onstream in 2015. Sempra is involved with PEMEX on part of the project.
There are also several pipeline projects underway on the U.S.-side of the border. These include several involving expanding capacity on the El Paso pipeline system, which is owned by Kinder Morgan (NYSE: KMI).
That is significant for natural gas industry, giving prices support. It should be a particularly profitable opportunity for the gas producing and pipeline companies in the South Texas region.
- Money Morning:
Investing in Mexico May Be a 100-Year Opportunity
- Christian Science Monitor:
A Surprising Source of Demand for US Natural Gas
- NPR.org - Texas:
Natural Gas Exports to Mexico Skyrocket
- Fuel Fix:
Natural Gas Exports to Mexico Jump 24 Percent
US Gas Export Capacity to Mexico Could More Than Double
- Financial Times:
US Gas Exports Give Mexico Competitive Edge
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