05.07 The Coming Natural Gas Export Revolution

While exports of liquefied natural gas (LNGs) are expected to commence by the 4th quarter of 2015, there is a quiet export revolution already occurring in the state of Texas. Pipelines running from the Eagle Ford Shale are exporting natural gas to Mexico. What began as a trickle is now projected to grow at a pace that will compete with LNG exports in size and scope.

Mexico has begun the Los Ramones pipeline project that, when completed, will be able to transport 2 billion cubic feet a day. This is on par with most large LNG export terminals. To put this in context, the Eagle Ford’s currently produces about 6 BCF per day.

The EIA projects that exports to Mexico will double by 2018 to close to 4 billion BCF per day from the United States. Citigroup projects that number could be even higher at 5 BCF per day. This would equate to approximately 5% of today’s natural gas production in the United States.

Much of this sudden increase in exports is driven by Mexico’s plans to expand its electrical generation capacity by building a number of natural gas fueled power plants. The plants are needed as Mexico is becoming the world’s low cost manufacturing hub. Daimler AG, Nissan and Kia Motors have all announced plans to build new manufacturing plants in Mexico. Nissan opened a $2 billion small car plant in 2012. Other auto manufacturers including Honda, Mazda, Audi and BMW have begun plans to add plants.

LNG exports are supposed to kick off in a big way between late 2015 and 2020. The U.S. could be exporting around 10 BCF per day by 2018 to Europe and Asia. When combined with exports to Mexico, the U.S. should see a new focus on natural gas demand and a new cycle in increased natural gas production.

Steve Titcomb, Investment Advisor, Echelon Investment Management