Mexican pipeline imports have kept at a steady rate of 4.4-4.5 bcf/d over 1–26 February, in line with January cross-border flows, both of which are 0.4 bcf/d higher y/y. LNG imports totalled 0.7 bcf/d in February according to preliminary tanker-tracking data from Kpler, in-line y/y. We forecast that pipeline imports will be 0.5 bcf/d higher y/y at 4.7 bcf/d this injection season, with downside risk still possible due to further delays to already tardy domestic pipeline infrastructure. For instance, full service on the 1.5 bcf/d El Encino–La Laguna pipe, which was originally expected to come online in March 2017, has been repeatedly delayed and has now been pushed back until at least the end of the year according to local sources.
Resilient pipeline flows since the start of the year eroded the need for any extra LNG. Takes in January were 0.1 bcf/d lower y/y at 0.3 bcf/d while imports in February stood at 0.7 bcf/d, in-line y/y. Pipeline imports in January and month-to-date have averaged 4.4 bcf/d, 0.4 bcf/d higher y/y.
For the upcoming injection season, we expect cross-border pipeline imports to trend 0.5 bcf/d higher y/y. Downside risk remains, however. One of the largest additions to capacity for the injection season, the Nueva Era pipeline system, is now expected in Q3 18 after being pushed back from its most recent February in-service date following delays to the Midstream de Mexico part of the system. Over the season, we expect LNG takes to trend 0.1 bcf/d higher y/y at 0.8 bcf/d.
Lagged official statistics from SENER, currently available for December 2017, continue to show a steep decline in domestic production. Total Mexican output shrank by 0.5 bcf/d to 2.7 bcf/d, a low not seen since at least 2012 (excluding hurricane-related production reductions, to 2.6 bcf/d, in September 2017). Gas flaring fell by 0.4 bcf/d y/y (57%) to 0.3 bcf/d, down, the lowest December figure since 2013, which helped offset some of the losses in production. In turn, pipeline imports expanded by 0.8 bcf/d to 4.4 bcf/d while LNG takes were 0.3 bcf/d higher compared to last year at 0.8 bcf/d.
Total gas demand in December was 0.7 bcf/d higher y/y at 7.8 bcf/d with power sector gas consumption leading the growth. Our power sector gas demand model, which includes gas use by CFE and independent power generators, put demand in December at 4.4 bcf/d, a whopping 1.1 bcf/d higher y/y. Demand from the res-com and industrial sectors shrank by 0.2 bcf/d each y/y to 0.6 bcf/d and 0.8 bcf/d respectively.
SENER power statistics for December indicate total power generation was 0.6 TWh (3%) lower y/y at 18.3 TWh, driven by strong declines in generation by steam (-0.6 TWh or 20% y/y) and coal (-0.6 TWh or 23% y/y). Hydro generation expanded by 0.3 TWh (29%) y/y while nuclear generation was 0.1 TWh (11%) higher y/y following six months of consecutive declines. CCGT and gas turbine generation each grew by a slight 49 GWh y/y to 10.5 TWh and 0.4 TWh respectively.
The much awaited 1.5 bcf/d El Encino–La Laguna pipeline was initially due to become operational in March 2017, but has been delayed several times. It was recently expected to begin operating by end-January 2018 but that has now shifted back to late 2018. The delays stem in part from an issue relating to ejido, a form of collective ownership, in Durango state, with a local dairy farmer filing a lawsuit in Agrarian Court against Mexican environmental agencies indicating that pipeline project developer, Fermaca. should not have been able to clear land on private property. Local sources in Durango state have said the line will be online by 2019, along with the 1.2 bcf/d La Laguna–Aguascalientes, recently expected online by November 2018.
TransCanada, which currently has three pipelines under construction in Mexico, recently announced several delays as well. The 0.9 bcf/d Tula–Villa de Reyes, which initially was expected to be completed in December 2017 and then delayed to July 2018, has now been pushed back further to late 2018, which we assume as a likely Q4 18 in-service date. As reported in last month’s publication (see Mexico – New year, new delays, 30 January 2018), members of the Iturbe and Boxay community in Tula stopped construction activity near their village in late January due to disputes over the trajectory of the pipeline and its impact on the nearby population. There have also been reports of archaeological investigations taking place along the route of the line, contributing to delays as well. The 0.9 bcf/d Tuxpan–Tula pipeline has now been delayed by a year to late 2019, according to TransCanada, after ‘right of path’ issues halted construction. The previous start date was December 2018. The sizeable 2.6 bcf/d marine Texas-Tuxpan pipeline is still scheduled to start in December 2018 and seems to be on track despite a court ruling halting construction works late last year. In late Q4 17, the project had received a provisional suspension on environmental concerns raised by the local fishing community about the impact on the local fauna (in particular, the local shrimp population). In its latest quarterly earnings report, TransCanada said that around 60% of offshore construction had been completed by end-2017.
The delays to the El Encino–La Laguna and La Laguna–Aguascalientes pipelines, now estimated to begin operations in 2019, put in question Fermaca’s November 2018 start-up of the 0.9 bcf/d Villa de Reyes–Aguascalientes–Guadalajara pipeline. The Villa de Reyes–Aguascalientes–Guadalajara project is set to feed gas from the La Laguna–Aguascalientes pipeline.
Importantly, the extent of delays to full service on El Encino–La Laguna and the domino effect on connected lines will make sure the already steep discounts at Waha remain or further deepen, as capacity utilisation at new cross-border pipes—Comanche Trail and TransPecos—targeting Permian supply originating in West Texas remains low. (see E-mail alert: Mexican infrastructure delays risk domino effect to cross-border flows and Waha basis, 23 February 2018).
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