Mexican gas and power market loses steam: Pipeline exports fall short of peak levels, but fundamentals point to rebound

Earlier expectations of solid seasonal and structural growth in Mexico’s gas and power market have experienced a decline due to a factor of reasons, including weather, says Wood Mackenzie in the report “Mexican gas and power market loses steam: Is a rebound in sight?” This trend underscores how quickly market conditions can evolve within Mexico's energy sector. 

“Several factors are contributing to this short-term dip in flows, driven by a mix of seasonal weather effects and shifting supply-demand dynamics”, said Ricardo Falcón, Research Manager at Wood Mackenzie. “The rainy season cooled the weather, reducing the need for power while simultaneously helping to refill water reservoirs, making more hydroelectric power available. This has led to a drop in generation from combined-cycle and turbogas units.”  

The climate challenges facing Mexico extend beyond typical seasonal variations. “Mexico is experiencing accelerated warming trends compared to global averages, making it particularly vulnerable to extreme weather events that can dramatically impact energy demand,” added Antonio Velázquez, Senior Research Analyst at Wood Mackenzie. While the current intense rainy season has provided temporary relief through increased hydroelectric generation, the looming threat of 'la canícula' - the extreme summer heatwave period - could quickly reverse these conditions.  

On the other hand, maintenance outages have affected operations. For example, in the case of Altamira FLNG1 offshore liquefaction terminal, disruptions have caused feedgas demand to drop to zero or near zero on three occasions. These scheduled outages have had noticeable, partially unexpected impacts on South Texas (STX) gas pipeline exports to Mexico.  

Mexican dry gas output increased 2% for more than two consecutive months, creating more gas-to-gas competition against imports of US piped gas, following a 10% plummet in May, precisely due to gas quality issues and other factors. Adding to this, the current production levels also face volatility risks which may contribute to a new downswing – a likely scenario at this point. 

The commissioning of new combined-cycle plants and incremental capacity additions is laying the foundation for more structural gas demand, although the impact is expected to be gradual. As these projects ramp up and weather-related volatility persists, the interaction between seasonal factors, infrastructure readiness, and long-term development will shape Mexico’s gas demand going forward. 

Finally, global factors are also adding to the uncertainty. “The Trump Administration’s new tariffs on global trading partners are already reshaping international trade flows. For Mexico, the effects are immediate. The measures are disrupting trade with the United States and weakening key drivers of manufacturing, investment and industrial output” concluded Rodrigo Rosas, Senior Research Analyst.