Despite the cold in the US and a warning about limited flexibility on Kinder Morgan’s 0.64 bcf/d Mier-Monterrey pipeline, natural gas flows into Mexico remained steady, averaging 4.4 bcf/d for the first half of January and all December. Pipeline flows will have limited upside given a new wave of pipeline delays, including at the 0.5 bcf/d Nueva Era system, which having already been delayed eight months to a February 2018 start has now been pushed back to Q3 18. A total of four pipelines scheduled to come online in 2018 have been delayed, in some cases by more than six months. Mexican LNG takes in December were 0.6 bcf/d (+0.1 bcf/d y/y), according to preliminary data from Kpler. Given continued declines in domestic natural gas output and the above pipeline delays, we now expect LNG imports in 2018 to be 0.1 bcf/d higher y/y—an upward revision from our previous forecast of a 0.1 bcf/d (9%) y/y fall. We have also cut our pipeline imports growth forecast by 0.1 bcf/d from last month, to 0.5 bcf/d in 2018.
The first pipeline scheduled to become operational this year is the 1.5 bcf/d El Encino–La Laguna. While its initial start date was March 2017, the project has been delayed several times and was expected to begin operating by end-January. It is still unclear at the time of writing if the pipe has come online or been further delayed, although the lack of news on any start-up suggests it is not yet online. Pipeline flow data in Mexico is minimal given the lack of coverage at intrastate meters, so data cross-checks are scarce. When finally online, the El Encino-La Laguna pipeline will take gas from the 1.4 bcf/d Ojinaga–El Encino pipe, which carries gas from the 1.4 bcf/d Trans-Pecos pipeline. The Ojinaga–El Encino pipeline, which came online in June 2017, has yet to register much in terms of daily volumes, needing the completion of the downstream pipe before it can significantly ramp up. Using EIA data for exports by exit point, flows at the San Elizario border crossing in October were just 0.14 bcf/d, indicating that pull from any Permian-targeted pipe (Trans-Pecos or Comanche Trail) is minimal. Currently, nearly all Apache’s gassy Alpine High acreage in the Permian is flowing via the Comanche Trail pipeline, accounting for 0.15 bcf/d of gas flow.
The start-up of the El Encino–La Laguna pipeline would ease some of the bottleneck currently limiting cross-border flows from the Permian. Ramping on that pipeline could still be slow as it will provide feed gas to two CCGTs currently under construction (the 957 MW Norte IV, on schedule to become operational in December 2018, and the 925 MW Norte III, planned for completion in June 2019). Construction on the latter was halted due to the project developer, Abengoa, filing for bankruptcy in Spain and Mexico. The project was eventually sold to a consortium comprising of Macquarie and Techint, and it has been reported construction work has now been resumed. However, material gas demand from these projects is unlikely until 2019. In the shorter term, new gas-fired generation capacity was also scheduled for January 2018, with the CCGT Valle de Mexico II (615 MW) nearing completion. No confirmation of start-up has been reported so far, which could mean the power plant could be delayed.
Other pipelines expected this year include:
- The 0.51 bcf/d Nueva Era pipeline that was scheduled to come online in February 2018, following several delays from its original in-service date of June 2017. While the US portion of the pipeline system, Impulsora, received permission from FERC in late November to enter service, the south of the border pipeline (Midstream de Mexico) will not be finalised until Q3 18. Midstream de Mexico is currently 80% completed. The pipeline is set to feed gas into the currently operational CCGTs Monterrey II (482 MW) and Monterrey III (1000 MW), and into the under construction Noreste (850 MW) and El Carmen (870 MW) CCGTs. The Noreste power plant was initially scheduled to start up in April 2018, but following Nueva Era’s delay is now slotted in for July 2018, although further delays are possible considering its feeder pipeline will not be available until Q3 18. El Carmen is currently planned to become operational in September 2019.
- The Tula–Villa de Reyes pipeline, which will connect to the currently operational 0.63 bcf/d Tamazunchale pipeline and the future 0.89 bcf/d Tuxpan-Tula. The start-up of Tula–Villa de Reyes, initially slated for December 2017 has now been delayed to July 2018. On 23 January, members of the Iturbe community in Tula stopped construction works around their village due to disputes over the trajectory of the pipeline and its impact on the nearby population.
- The 0.67 bcf/d El Encino–Topolobampo pipe has been running at partial service, although the project will not be finished until mid-2018, compared to its initial March 2018 date for full service.
- The 0.5 bcf/d Guaymas-El Oro (Sonora South) has been under force majeure since August 2017 due to damages caused to the pipeline following clashes with the local Yaqui indigenous community. In the last month, further damages have been reported while a court ruling currently prevents IEnova from being able to carry out the necessary maintenance.
- The 1.2 bcf/d La Laguna–Aguascalientes pipeline is now due for completion in November 2018, a delay from the previous July 2018 deadline and almost a year late vs the initial December 2017 start-up. Its southern connection, the 0.89 bcf/d Villa de Reyes–Aguascalientes–Guadalajara has also been postponed to a November 2018 start-up from December 2017 initially.
- The 2.6 bcf/d Texas-Tuxpan pipeline, expected online in December 2018. Recently, the local fishing community has claimed that construction of the pipe has led to a 40% decline in fishing, although local authorities countered that the decline was caused by recent cold spells. Regardless of the cause, the delay of the Texas-Tuxpan is indicative of a new wave of concerns. Whereas previously delays to such projects have largely hinged on issues related to collective and indigenous ownership (See North America Insight: Can’t pipe this, 21 December 2017), this delay stems from environmental issues with a local fishing collective concerned about shrimp habitats. The pipeline timeline status remains unclear as construction has been halted as a result a court ruling in November 2017, with its target start-up date of December 2018 increasingly at risk.
As we have indicated in many recent reports, risks are weighted to the downside for Mexican cross-border trade as pipeline project delays continue to crop up. While the most headline-grabbing reports have focused on delays to border-crossing pipelines such as Nueva Era and the Texas-Tuxpan, it is the seemingly continuous string of holds-ups to domestic Mexican infrastructure—including many pipes which directly tie into new powerplant capacity—that will be the largest limiting factors to Q1 18 and injection season growth. As a result of these delays, we have made downward revisions to both our forecast for injection season pipeline trade growth (to 0.5 bcf/d), as well as our forecast for average monthly cross-border flows for July (to 4.8 bcf/d), which is typically the peak month of cross-border trade. A much bigger jump in flows would be expected if the domestic Mexican pipeline delays were not so severe. For this reason, LNG imports for 2018 have been revised upwards from last month’s 0.1 bcf/d decrease y/y to a 0.1 bcf/d y/y increase instead.