Energy In-depth: U.S. shale producers rapidly expanding pipeline capacity for natural gas exports into Mexico

Editor’s note: Each Friday, Talk Business & Politics provides “Energy In-depth,” a round-up of energy and regulatory news. 

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U.S. SHALE PRODUCERS RAPIDLY EXPANDING PIPELINE CAPACITY FOR NATURAL GAS EXPORTS INTO MEXICO
U.S. pipeline capacity for natural gas exports to Mexico has rapidly expanded in the past few years and currently stands at 7.3 billion cubic feet per day (Bcf/d). This existing cross-border capacity primarily supplies the Northeast and Central regions of Mexico.

New capacity projected to be completed in the next several years will help to supply Mexico’s Central and Northwestern regions, according to the U.S. Energy Information Administration. The expansion of the U.S. cross-border pipeline network into Mexico has been driven primarily by strong growth in Mexico’s natural gas demand in the power sector, declining domestic production, and the lower prices of U.S. pipeline gas compared with more expensive liquefied natural gas (LNG) imports.

In the next three years, U.S. pipeline capacity into Mexico will nearly double. In 2017, four U.S. pipeline projects under construction—Roadrunner (Phase II), Comanche Trail, Presidio Crossing (also called Trans-Pecos), and Nueva Era—totaling 3.5 Bcf/d, will supply natural gas to new natural gas-fired power plants in the states of Chihuahua, Nuevo Leon, Sonora, and Sinaloa.

By the end of 2018, two additional pipelines—KM Mier-Monterrey and Neuces-Brownsville—totaling 3.3 Bcf/d, are projected to begin exporting natural gas to Mexico’s Northeast and Central regions, mainly from the Eagle Ford play in southern Texas.

BP COMMITS TO $9 BILLION MAD DOG 2, FIRST DEEPWATER GULF PROJECT IN U.S. SINCE HORIZON SPILL
More than six years after the Deepwater Horizon oil spill, British oil giant BP said Thursday (Dec. 1) that it has sanctioned the $9 billion deepwater Mad Dog Phase 2 project in the Gulf of Mexico, highlighting the company’s long-term commitment to the U.S. offshore despite the current low oil price environment.

Mad Dog Phase 2, which BP discovered in 1998, will include a new floating production platform with the capacity to produce up to 140,000 gross barrels of crude oil per day from up to 14 production wells. Oil production is expected to begin in late 2021. The second Mad Dog platform will be moored approximately six miles to the southwest of the existing Mad Dog platform, which is located in 4,500 feet of water about 190 miles south of New Orleans.

In 2013, BP, which is operating with a 60.5% working interest, and co-owners, BHP Billiton (23.9%) and Union Oil Company of California, an affiliate of Chevron USA Inc. (15.6%) decided to re-evaluate the Mad Dog Phase 2 project after an initial design proved too complex and costly. Since then, BP has worked with co-owners and contractors to simplify and standardize the platform’s design, reducing the overall project cost by about 60%.

Today, the leaner project that also includes capacity for water injection is projected to be profitable at or below current oil prices, BP officials said. While BP has reached a final investment decision on Mad Dog Phase 2, BHP Billiton and Chevron are expected to make a final investment decision in the future.

CRUDE PRICES SPIKE AFTER OPEC, RUSSIA AGREE TO CUT PRODUCTION BY 1.2 MILLION BARRELS
U.S. and international crude prices surged in trading on Thursday after the Organization of Petroleum Exporting Countries (OPEC) and non-member Russia agreed to cut oil stockpiles in order to the current glut. OPEC on Wednesday (Nov. 30) completed its 171st meeting in Vienna, where the 14 member states decided to implement the so-called “Algiers Accord,” a new production target of 32.5 million barrels a day. OPEC officials said the deal, which will become effective on Jan. 1, 2017, will accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward.

OPEC produces a third of global oil, or around 33.6 million bpd, and the deal will reduce the cartel’s output by 1.2 million bpd. That will bring current OPEC production in line with January 2016 levels, when prices fell to 10-year lows as supplies outstripped demand.

In London, Benchmark Brent crude futures closed up $2.10, or 4.1% at $53.94 a barrel after hitting a 16-month high earlier in Thursday’s session. West Texas intermediate, the premium U.S. light-sweet crude, settled up $1.62, or 3.3% at $51.06 a barrel on the New York Mercantile Exchange. U.S. benchmark crude earlier rose to $51.80, just off a yearly high.