Más Gas, Por Favor – Exports to Mexico

September 27, 2017

The privatization of the Mexican energy markets is gaining traction with larger than expected resources recently found in the Gulf of Mexico and with bidding for exploration and production rights on the rise. For years, the Mexican government has sought bids for the construction of energy infrastructure in an effort to increase the amount of consumable energy available to Mexico’s domestic residential and industrial markets. And with integration to a private pipeline market in order to seek nominations for natural gas transmission, Mexican pipelines are now supporting electronic bulletin board transactions, much like their American counterparts. What insight into the success of the pipeline markets can be drawn by, for example, analyzing contracts the Mexican government holds on existing U.S. pipelines delivering natural gas and planned cross-border projects?  

Despite Mexico’s efforts at privatization, its shipments of natural gas from the U.S. into Mexico are largely carried out by the Comision Federal de Electridad (CFE) or Mex Gas Supply S.L., a company contracted to transport for the CFE. Both entities hold firm and interruptible transportation contracts with U.S. interstate pipelines such as Kinder Morgan’s Natural Gas Pipeline Company of America (NGPL), as well as intrastate pipelines in Texas, many of which are now captured in LawIQ’s platform (see below). NGPL is betting big on the demand for gas in the Southeast by proposing the Gulf Coast Southbound Expansion Project, which will provide “service from existing or new interconnects on NGPL in Illinois and Iowa (including REXPEPLAlliance and Northern Border).” However, Mex Gas intends to transfer its assets, including contracts to CFE, in an effort to give up its business of acquiring natural gas supplies in the U.S. 

On an equally discouraging note for Mexican energy markets and those in the U.S., other shippers are also not showing any interest in the Mexican markets. For example, in July, CENAGAS, Mexico’s natural gas pipeline system operator, held its second pipeline capacity auction, seeking shipment through five U.S. pipelines to Mexican markets, and offering a total capacity of 2,276,337 MMBtu/d for a one-year term. The auction did not result in any bids across the five pipelines involved:  Transpecos (Waha-Presidio), Comanche (Waha-San Elizario), El Paso Natural Gas, including the Wilcox Lateral, and Road Runner

The amount of gas exported from the U.S. by pipeline into Mexico has grown during the past year, but the number of border crossing projects has not. In 2016, there were no border crossing projects filed with the Federal Energy Regulatory Commission (FERC) and only one was filed in 2017. The FERC serves as the arbiter of project need and environmental impact through its Certificate of Public Convenience and Necessity proceeding, while the Department of Energy determines whether or not the proposed export capacity should be permitted. There are currently two border crossing projects undergoing review at the FERC, Impulsora’s Colombia Pipeline Project and Enbridge’s Valley Crossing Border Pipeline Project

Impulsora has now received two extensions from the FERC for its Certificate issuance due to issues with construction, most recently in May. Impulsora requested that the FERC extend the date for placing the 36-inch-diameter Border-Crossing Facilities into service to no later than December 31, 2017. It has encountered unexpected construction delays on the Mexican side of the border and has not yet been able to commence drilling activities. While Impulsora expects to commence drilling soon, it admittedly is no longer on course to place the 36-inch Border Crossing Facilities in service by the originally planned date of June 1, 2017. As a result, Impulsora and CFE have moved back the commercial operations date set forth in their commercial agreements. 

On June 13, 2016, the CFE awarded contracts to Enbridge’s Valley Crossing Project, a planned 168-mile intrastate gas pipeline project, to provide natural gas transportation services beginning in 2018 to meet Mexico’s growing electric generation needs. Similarly, the Pomelo Connector and South Texas Expansion Projects, both expansions of existing systems rather than border crossing projects like the Valley Crossing Project, are also being constructed to provide service to the CFE. Last Friday, FERC issued a final joint environmental assessment for these projects. 

While other shippers are not taking an interest in the transportation of natural gas in Mexico, the government continues to drive development. Perhaps, like exploration and production, the success of Mexico’s energy reform efforts won’t be obvious for several years. Although, in the future, it may be the case that the increased production of domestic Mexican gas will reduce the need for further advances in transport across the border from U.S. 

Firm Intrastate Contracted Capacity- CFE & Mex Gas Supply