The shale boom has unleashed a flood of natural gas so large that we’ve not yet really known what to do with it. This sort of problem can certainly be filed under the category of those we’d like to have, but it represents a big challenge for producers: the domestic glut of shale gas has depressed Henry Hub prices—the U.S. natural gas spot price benchmark—down to just above $2 per million British thermal units (mmBtu), a bargain so great that it’s threatening the profitability of many suppliers.
But this discount is a regional one—unlike oil, natural gas prices vary significantly across different markets. As a result, U.S. natural gas producers have been eager to ply their wares abroad, which is one of the reasons why America is now exporting cargoes of liquified natural gas (LNG). At the moment, however, the global LNG market is also oversupplied, and thanks to the costs that come with liquifying, shipping, and then regassifying our glut of shale gas, the profit margins for LNG exports are very slim.
There’s another solution, and it can be found much closer to home: transporting that gas via pipelines down to our southern neighbor, Mexico. The FT reports:
Bigger gas sales to Mexico could not come soon enough for energy producers. The warmest winter on record left 2.5tn cubic feet of gas in US storage, the most ever for the end of the heating season. The US Energy Information Administration believes gas prices will average $2 per million British thermal units this year, the cheapest since 1998.
“It’s a huge potential economic benefit to US producers to be able to ship gas just across the border to Mexico,” David Porter, chairman of the Texas Railroad Commission, a state energy regulator, told the FT Energy Infrastructure Forum in Houston last week.
This doesn’t just make sense for the U.S., either. Mexico is eager to transition away from burning oil and diesel to generate electricity, and natural gas can make for a great substitute—especially at these prices. On top of that, natural gas is the cleanest burning fossil fuel around, so the more of it Mexico consumes in place of other, browner energy sources, the greener it becomes.
The United States has seen its energy fortunes fundamentally transformed by the shale boom, but this success can have exciting knock-on effects for both Canada and Mexico, as well. North America could be entering an era of unprecedented energy security, and that’s something worth cheering.