On June 22, Mexico’s Federal Electricity Commission (CFE) announced it would tender a new round of 24 energy infrastructure projects totaling $10 billion, including a $3 billion underwater pipeline bringing U.S. natural gas from Texas to Tuxpan, Veracruz. Amidst a grand national “gasification” strategy that has promoted Mexican imports of U.S. natural gas, this may be one of the most ambitious projects yet.
Of course there are concerns around potential risks associated with the project – whether there is the local capacity to carry it out, and whether it’s really necessary – all of which must be resolved if the pipeline is to begin transporting the proposed 2.6 billion cubic feet of natural gas per day by 2018.
As for financing and construction of the Texas–Tuxpan subsea pipeline there are several options. In the case of previous tenders, interest has come from well-established U.S. companies such as Sempra’s IEnova, which owns and operates over 300 miles of pipelines in Mexico. There are also newcomers such as Carlos Slim’s Carso Energy, which recently won a pipeline contract as part of a consortium with U.S.-based Energy Transfer Partners and MasTec Inc.
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It is more likely, however, that the pipeline will attract attention from further afield. North America is not known for its subsea pipeline infrastructure, though it is relatively common in other parts of the globe. For example, the Nord Stream pipeline delivers natural gas from Russia to Germany via the Baltic Sea and has just announced an expansion that would increase its annual delivery to 55 billion cubic meters of natural gas. Or consider the Langeled Pipeline, which has been successfully transporting Norwegian natural gas to the UK for almost a decade.
Still, despite the great promise and high ticket price of the Texas–Tuxpan pipeline, it must be considered as just one small piece of a much larger strategy. The Mexican government plans to increase the nation’s pipeline infrastructure by 75 percent by 2018. CFE currently has 13 national pipelines, three international pipelines, and a host of generation plants and transmission contracts out for tender. This is in addition to large-scale projects already underway, such as the Los Ramones pipeline phases I and II.
The first phase of the Los Ramones pipeline is expected to deliver 2.1 billion cubic feet of natural gas per day from the United States. Phase two just received financing under an exciting deal between national oil company Pemex and BlackRock and Reserve Corp.
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Meanwhile, Mexico’s thirst for U.S. natural gas continues to rise. In March 2015, Mexico imported over 79.6 billion cubic feet of natural gas from the United States up from 58 billion the year before, according to the U.S. Energy Information Administration.
While the energy reforms are intended to boost domestic oil and gas production, the main focus has been on petroleum, with the understanding that Mexico’s proximity to the United States should not be wasted. The argument follows that cheap natural gas imports will in turn lower the price of electricity for consumers, one of the main goals of the reforms. For the regions of Mexico dependent on fuel oil and diesel for power generation, switching to natural gas also makes environmental sense.
Yet historically low natural gas prices will not last forever and there are some who fear that neglecting Mexico’s domestic natural gas potential could be a mistake.
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Perhaps an unintended consequence of this new flow of natural gas into Mexico is the opportunity to re-export the natural gas as LNG. Sempra LNG and IEnova are in talks with Pemex to develop liquefaction facilities at its Costa Azul terminal in Baja California to export LNG from the west coast of Mexico to markets in Asia.
It is too early to speculate which companies will show interest in the Texas – Tuxpan tender but the players will become clear as proposals are prepared and submitted later this year. In the meantime, however, there are numerous opportunities for investors and construction companies – with relatively low risk – in Mexico’s burgeoning above ground and under water pipeline sectors.
By Alexis Arthur Of Oilprice.com
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