In July, a planned pipeline maintenance and an unplanned processing plant outage in South Texas may have restricted gas supply into the Northeast region of Mexico, causing an increased reliance on fuel oil and a regional increase in power prices.
Mexican gas demand has trended above all-time highs over six of the last seven months this year. Total Mexican gas demand has averaged just over 8 Bcf/d over the past three months, peaking at 8.05 Bcf/d in June, according to Platts Analytics’ Bentek Energy data. This represents a year-on-year build of 330 MMcf/d (4%) (See Figure 1).
Power burn led this increase, peaking at 4.2 Bcf/d in June, a 450 MMcf/d (12%) build, year on year. In July, however, Platts Analytics estimates that power burn declined by around 50 MMcf/d from June highs. This is partly because hydro power is generally utilized at higher rates in the mid-to-late summer months. Increased fuel oil consumption was likely the largest driver of the month-on-month decline, as indicated by the high power prices reported during the month. Year-to-date power burn has averaged 3.8 Bcf/d, a 150 MMcf/d (4%) build over last year (See Figure 2).
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The CFE has continued to rely heavily on fuel oil for power generation this year. The CFE reported an average of nearly 500 million liters of fuel oil consumed per month, year to date, up 140 million liters (39%) compared to last year. In June, fuel oil consumption rose to 683 million liters (around 0.7 Bcf/d gas equivalent), a 90 million liter (15%) build over June (See Figure 3).
In July, the highest power prices registered $355.79/MWh at 27 different price nodes compared to $375.27/MWh at 17 price nodes in June. June maximum prices were confined to Sonora, Chihuahua, Sinaloa, and Durango in the northwest portion of the country. July, however, maximums expanded east into Coahuila, Nuevo Leon, and Tamaulipas in the Northeast region. Elevated prices in the eastern states were likely due to increased reliance on fuel oil, with supply deliveries from Tennessee Gas Pipeline restricted in South Texas.
Average monthly day-ahead on-peak prices followed a similar pattern as prices on the northern portion of the Interconnected System climbed 16% from June to $74.69/MWh thanks to more widespread price spikes. Prices in the southern region remained flat from June while the Yucatan actually saw average prices fall 5% to $63.35/MWh on lower demand.
The King Ranch plant is expected to come back online in mid-August, which may alleviate some of the supply constraints on TGP, but the Station 9 outage is expected to persist through the end of August, which will continue to hamper deliveries into Northeast Mexico.
Therefore, elevated power prices in the northern portion of the Interconnected System could continue through August as the CFE increases fuel oil consumption to offset lost South Texas gas supplies.