Our forecast for pipeline gas imports from the US to Mexico through this injection season remain unchanged from last month, at 4.6 bcf/d (+0.3 bcf/d y/y), with peak monthly flows closer to 4.7 bcf/d. Any upside to this figure is limited as the next wave of import capacity additions are only scheduled for operations towards the end of the year. LNG will continue to backfill demand because of limited piped imports due to the ongoing infrastructure bottleneck. We have increased our LNG takes projection for the injection season by 0.1 bcf/d from last month, now to average 0.8 bcf/d, 0.1 bcf/d higher y/y.
Cross-border gas pipeline flows in April are set to average just below 4.3 bcf/d (+0.4 bcf/d higher y/y) following disruptions from maintenance on NET Mexico pipeline. Similarly, flows in March were impacted by the same maintenance event, averaging 4.2 bcf/d, down from the 4.4 bcf/d level that had persisted since October 2017. LNG imports gained by as much as 0.6 bcf/d y/y in March as Mexico met demand with LNG following the impact from pipeline maintenance. Mexican LNG imports, based on preliminary Kpler cargo-tracking data for April (including en route cargoes), will be 0.1 bcf/d lower y/y at 0.5 bcf/d, though there remains enough time for additional cargoes to be purchased and could take LNG imports higher y/y.
We continue to expect cross-border pipeline flows to average 4.6 bcf/d over the injection season, a 0.3 bcf/d y/y increase. During the peak summer gas demand months, we forecast flows to reach as high as 4.7 bcf/d. However, as the next wave of infrastructure additions are not due until the end of the year, further upside is limited. We expect LNG imports to average 0.8 bcf/d, a slender 0.1 bcf/d y/y increase through the injection season.
Looking further ahead to the withdrawal season, we expect cross-border flows to average 4.8 bcf/d (+0.4 bcf/d y/y) as the 0.5 bcf/d Nueva Era system (November 2018) and several domestic pipelines are scheduled to come online. Given recent experience, further delays to the five domestic projects we expect by end of year cannot be ruled out. The start-up of some of the lines such as El Encino–La Laguna and La Laguna–Aguascalientes would provide much needed capacity debottlenecking, especially as visible flows to the north and west of the Permian are being utilised at near maximum capacity, and implied flows to the east are similarly looking tight against available pipeline capacity.
SENER filed its latest infrastructure update this month. Below are some of the most relevant discrepancies and updates versus our outlook.
El Encino–La Laguna
SENER stated in its report that the 1.5 bcf/d project was due to be completed in March 2018, but it is now April and the facility does not appear to be in service. The project has suffered various delays from its initial March 2017 target due to a land dispute (for more details see Data review: Mexico – Delay domino effect, 27 February 2018).
Development of the project is divided into two stages. The first stage will provide gas to the 316 MW power plant in Delicias, Chihuahua, while the second stage will provide gas to two power plants in Lerdo, Durango (the operational 320 MW Guadalupe Victoria and the currently under construction 957 MW Norte IV). Earlier this month, a government official from Durango state said that construction works for the second phase have not started yet. The official said that studies on the path of the pipeline are still being conducted and that construction of the next phase could commence before July. For this reason, we maintain a December 2018 operational date for the project.
Tula–Villa de Reyes
The 0.9 bcf/d project, which will connect to the already operational 0.6 bcf/d Tamazunchale pipeline and the planned 0.9 bcf/d Tuxpan–Tula (aka the Huasteca pipeline), is expected by SENER to commence operations in July 2018. Local reports, however, claim the project has been halted by a court order. There have also been delays stemming from archaeological investigations being undertaken along the pipeline route. We maintain our forecast of the line becoming operational in Q4 18—a year later than the initial target.
Construction of the 2.6 bcf/d marine pipeline started in May 2017 and according to the latest SENER project update is expected for completion in October 2018. Some press reports have cited a start date of November 2018, while last month a government official indicated the project could be delayed until March 2019. In our balances, we assume a Q1 19 start-up, which would be a total delay of nine months from the initial June 2018 completion date.
Considering the project has had several setbacks, a prompt October – November 2018 completion would involve an incredibly expedited level of construction to be achieved. In November 2017, a court injunction halted works as the local fishing community raised environmental concerns regarding the local shrimp population. The pipe’s works now appear to be underway again with recent reports indicating it is 68% complete. Other setbacks include news that storms in the area seem to have flooded part of the pipeline while construction and land permits by local municipalities were reported to have been revoked. On the flip side, market chatter has centred on drill boats in the area working more expeditiously.
Last month (see Data review: Mexico – Keeping it conservative, 27 Mar 2018), we discussed reports that Tuxpan’s municipal government had not granted the necessary permits to TransCanada, while other sources confirmed that the mayor of the Tamiahua municipality followed Tuxpan’s decision and cancelled construction licences in the region. By the end of March, news emerged that an agreement had been reached between the fishing community of Tamiahua and TransCanada, reportedly involving monetary compensation and job guarantees for the local community. The negotiations, however, had been reached without any municipal authority representatives being present, bringing into question the validity of the agreement and thus the potential for the reinstatement of the necessary permits.
Construction of the 0.9 bcf/d pipeline, which will connect to the 2.6 bcf/d Texas–Tuxpan project, has been halted following ‘right of path’ issues. TransCanada, the project developer, announced in February that the project is now to be completed in late 2019, more or less in line with our Q4 19 start date assumption. The line was initially expected to be completed in March 2017. SENER still lists this as a December 2018 start-up.
At the end of 2017, CFE announced plans to place in service an FSRU at the port of Pajaritos, in Coatzacoalcos (Veracruz) towards the end of 2018 or start of 2019. The FSRU is set to relieve gas shortages in the Yucatan peninsula. The area usually sources its gas from associated production in the southern coast fields, but this gas tends to get shipped to the demand hubs of central Mexico. While a CFE tender will need to take place, it was recently reported that Pemex is planning a 0.4 bcf/d connection between the SISTRANSGAS system and the proposed FSRU. The planned interconnection is set to be completed in January 2019. There is a possibility that the pipeline will be ready before the regas unit, which would support a sharp ramp-up in use of the FSRU when it arrives.
Last month, Hoegh completed its eighth FSRU, the Hoegh Esperanza, with a 0.75 bcf/d regasification capacity. The floating unit was initially planned for the Penco-Lirquen LNG import terminal in Chile, but the project has now been delayed to 2021 due to environmental concerns. Hoegh reported earlier this month that it is currently in advanced negotiations to temporarily reallocate the vessel to a different project. While it has not been made public who these negotiations are with, Mexico is an obvious candidate given it has advanced FSRU project plans. The FSRUs could be used until the pipeline infrastructure bottlenecks with its connections to the US border get resolved.