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posted on 24 September 2017

Spotlight: Cross-Border Pipelines Link U.S. Natural Gas Producers, Mexican Electricity Users

from the Dallas Fed

-- this post authored by Rachel Brasier and Jesse Thompson

Mexican energy reforms have opened the door to shale gas from the United States - and imports are booming. U.S. natural gas production reached a record high in July 2015, largely due to increased shale drilling dating back to 2010 in the Marcellus field in the Northeastern U.S. and the Permian and Eagle Ford basins in Texas.

Meanwhile in Mexico, reforms that began in 2014 broke the monopoly held by the state energy company, Pemex, on electricity generation. The changes also emphasized cleaner fuels, such as natural gas, and promoted rental of pipeline capacity to private enterprise. As a result, Mexico emerged as an attractive destination for excess U.S. gas supplies.

Export Infrastructure Developed

Natural gas prices averaged over $8 per thousand cubic feet from 2004 to 2008 - before the shale gas boom from hydraulic fracturing, or fracking, took off in 2010. Liquefied natural gas (LNG) import terminals had been built in anticipation of a need for less-expensive foreign natural gas for domestic consumption.

Plans changed when U.S. gas prices sank to around $3 under the weight of new gas production from shale deposits. Firms took another look at the LNG terminals they’d been building and began reversing the flow of gas - turning LNG import terminals into export facilities and building new pipelines from newly active areas such as the Eagle Ford.

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