Cross-border natural gas pipeline flows averaged just under 4.4 bcf/d over 1–26 March, 0.4 bcf/d higher y/y and largely flat m/m. A further uptick in pipeline imports is limited by ongoing infrastructure bottlenecks, while LNG takes continue to backfill demand. LNG imports during March are an impressive 0.5 bcf/d higher y/y at 0.8 bcf/d (0.5 Mt), according to preliminary data from Kpler, the highest level of imports since June 2017. Pipeline projects face further delays, with the 0.5 bcf/d Nueva Era system standing as the largest project expected online this injection season. Guaymas-El Oro remains in a legal stalemate following a force majeure and we have heard conflicting reports about local permitting on the 2.6 bcf/d Texas-Tuxpan marine pipe. We continue to take a conservative view of net trade growth this summer, with peak cooling season flows near 4.7 bcf/d.
Cross-border pipeline flows have remained at 4.3-4.4 bcf/d since October 2017 and we expect only a small uptick to 4.5 bcf/d during Q2 18 before a ramp-up towards 4.7 bcf/d in peak summer cooling season. However, maintenance will potentially see these volumes drop, but only for a short duration. Over 27 March–2 April, flows could fall significantly below the 4.3-4.4 bcf/d average for the duration of a critical notice period on NET Mexico and the Gasoductos del Noreste system for compression works as reported by SISTRANGAS on 14 March. Last year, flows were cut by 0.5-1.0 bcf/d during similar maintenance. Through the critical notice SISTRANGAS has said that CENAGAS, the SISTRANGAS system’s operator, would make efforts not to impact daily use. In early March, CFE tendered for delivery of two late-March LNG cargoes into Altamira, suggesting potential concerns over disruptions. Total LNG takes in March averaged 0.5 bcf/d higher y/y, at 0.8 bcf/d, and were the highest since June 2017. February imports were also higher y/y, by 0.1 bcf/d to 0.7 bcf/d.
For the upcoming injection season, we peg LNG imports at 0.7 bcf/d (+50 mmcf/d y/y), in order to meet Mexico’s growing gas demand, as many of its domestic infrastructure projects are delayed. For the same period, we forecast cross-border flows to average 4.6 bcf/d, 0.4 bcf/d higher y/y, though that number is rather conservative as no major domestic pipelines are set to become operational during the period other than the continued ramp-up of El Encino-Topolobampo, which we understand should continue through this summer. However, it remains unclear how much more demand is actually pent up at the end of the pipe in Topolobampo, Sinaloa. Sources from the Mexican economy ministry have mentioned that gas should arrive to the State of Sinaloa via El Encino-Topolobampo as soon as April-May.
The cautionary tale of Guaymas–El Oro
While new domestic infrastructure continues to face delays, endangering further demand growth for US pipeline exports, disputes have also affected completed projects, such as the 0.5 bcf/d Guaymas–El Oro pipe, which became operational in April 2017. After third parties damaged the pipeline, a force majeure was declared in August.
Guaymas–El Oro was developed by IEnova to transport gas from the Sasabe–Guaymas pipeline (which typically feeds gas from Arizona) into El Oro in the Mexican State of Sinaloa. The gas would then be fed into El Oro–Topolobampo (which ties into the El Encino–Topolobampo pipeline) and south into El Oro–Mazatlan, which was completed in 2016. The Guaymas–El Oro force majeure and delays to the ramp up of the El Encino–Topolobampo pipeline have meant two operating thermal power plants (300 MW Jose Aceves Pozos, also known as Mazatlan II, and 320 MW Juan de Dios Batiz Paredes) that were modified to burn gas instead of fuel oil are still currently burning the dirtier fuel as there is no gas available yet in the region. In addition, the 890 MW Topolobampo II and 777 MW Topolobampo III CCGT plants, which are currently under construction and are to be completed in 2019 and 2020 respectively, further highlight the need for the necessary pipeline infrastructure connections to become operational.
The current force majeure on Guaymas–El Oro stems from a shared ownership dispute with local communities. According to local reports, seven of the eight communities affected by the project were consulted and reached an agreement with the project developer, IEnova, but permits can only be granted if all parties unanimously agree—the eighth community, in Loma Bacum, did not. In April 2016, a court ruling halted the project’s construction until the concerns of Loma Bacum’s Yaqui community were considered. Despite this, construction went ahead and the pipeline was brought online, until members of the Yaqui community dug out and cut through part of the pipe. IEnova was then prevented, by court ruling, from making repairs, and in October 2017 violent clashes between locals and government were reported. On 3 March, a judge in Sonora denied SENER’s request to lift a court injunction preventing IEnova from making repairs. SENER is appealing the decision and the next hearing was set for 23 March, but reports suggest the hearing may have been postponed by a month. For now, the Guaymas–El Oro pipe is at a legal standstill. Elsewhere, in the State of Sinaloa, the market is awaiting the ramp-up of the El Encino–Topolobampo line to push gas into El Oro–Topolobampo and El Oro–Mazatlan.
In other news, municipal governments in Tuxpan and Tamiahua have reportedly revoked the necessary construction and land permits for the 2.6 bcf/d Texas-Tuxpan pipeline, slated to come online in March 2019. Recent reports are conflicting—some claim construction is continuing, others indicate works have halted in the city of Tampico. Several local news outlets have reported Tuxpan’s municipal government has not granted the necessary permits to TransCanada, while other sources have reported that the mayor of the Tamiahua municipality followed Tuxpan’s decision and cancelled construction licences in that region. Tamiahua’s mayor cited irregularities such as excavation and construction works taking place in areas outside of those permitted. These events follow recent lawsuits filed by the local fishing community in November 2017 over concerns the project would endanger wildlife. The extent of delays to the pipe’s March 2019 start-up are unclear, but timely completion of the project is clearly at risk.