E&P Stock Perspectives Per Underlying Commodity Price Drivers
25 April 2013 ¦ 12 pages ir.citi.com
U.S. Natural Gas Exports To Mexico Still On The Rise With The
Eagle Shale Providing Much Of The Incremental Supply
Natural Gas Exports To Mexico Still On The Rise – Currently, ~3% of U.S.
natural gas production, or 1.8 Bcf/d, is exported to Mexico. In 2012, exports to
Mexico were up nearly 25% as consumption, primarily for power generation, is
rising faster than the country’s natural gas production with imports now accounting
for ~30% of total supply. In fact, Mexico’s onshore natural gas production has
declined over the past three years with ~70% of volumes being associated gas
produced from oil fields. Prior to 2011, exports to Mexico exhibited a high inverse
correlation to U.S. natural gas prices but since 2011 this relationship has broken
down with Mexican exports continuing to rise after U.S. natural gas prices first fell
sharply and then subsequently rebounded. Going forward we expect exports to
Mexico will continue to rise independent of U.S. natural gas price movements. And
with up to 3.5 Bcf/d of additional export capacity underway or proposed by the end
of next year, we project exports to Mexico will increase ~15% year over year in 2013
to 1.9 Bcf/d and will rise another nearly 20% next year to 2.3 Bcf/d. Thus, the more
natural gas leveraged E&P stocks with operations in Texas, particularly the Eagle
Ford shale which accounts for a significant proportion of export volumes to Mexico,
such as APC, EOG, PXD, MRO and ROSE, would likely benefit the most from a
continued increase in exports to Mexico as it provides an outlet for an oversupplied
market and some relative near-term price support for the region. |
