New pipeline capacity has led to a moderate ramp-up in Mexican pipeline imports, which we peg at 4.7-4.8 bcf/d (+0.4 bcf/d y/y) this month. July’s three-year high LNG imports of 1.1 bcf/d (+0.4 bcf/d y/y), continued strong takes in August of 0.9 bcf/d (+0.2 bcf/d y/y) and a slow ramp-up of pipeline flows via TransCanada’s El Encino–Mazatlan help to inform this view that pipeline trade is steadily increasing rather than surging quickly. For the heating season, we anticipate some 0.5-0.6 bcf/d y/y of growth in pipeline trade, which will continue to be backfilled by LNG imports.
The 0.5 bcf/d Nueva Era and 0.7 bcf/d El Encino–Topolobampo pipelines have recently entered service in Mexico. However, the dearth of pipeline flow reporting in Texas means large gaps in real-time cross-border flow data make it difficult to pinpoint exactly how high peak cooling season flows have trended. Available SISTRANGAS and TransCanada flow data show Mexican gas imports rising rather than surging. We peg total August cross-border flows at 4.7-4.8 bcf/d (+0.4 bcf/d y/y).
Most of this growth appears to be driven by flows into the SISTRANGAS system and not the new pipeline capacity additions. In July alone, SISTRANGAS gas imports increased by 0.3 bcf/d y/y to 2.9 bcf/d, while month-to-date August flows stand 0.5 bcf/d higher than last year at 3.0 bcf/d. Most of the growth in SISTRANGAS imports from the US in July and August was driven by flows through NET Mexico, as well as border flows into SISTRANGAS through Kinder Morgan’s pipeline system.
As for newly completed pipelines, the El Encino–Mazatlan pipeline system — comprising the 0.7 bcf/d El Encino–Topolobampo and 0.2 bcf/d El Oro–Mazatlan pipelines — is not flowing more than 0.1 bcf/d. While more gas could be flowing into the El Encino-Topolobampo portion of pipe and being consumed along that line before making its way onto El Oro-Mazatlan and feeding the fuel-oil to gas conversion Juan de Dios Batiz Paredes power plant (320 MW), not until the greenfield CCGT projects Topolobampo II and Topolobampo III are completed will greater demand on the El Encino–Topolobampo pipeline materialise. The 890 MW Topolobampo II and 777 MW Topolobampo III CCGTs are expected to start operations in January 2019 and a year later respectively. At full capacity utilisation, both plants would burn some 0.3 bcf/d of gas.
Additionally, we expect only partial capacity utilisation of the 0.5 bcf/d Nueva Era system for the rest of 2018. The system, which became operational in July, is expected to feed four CCGTs. Two of those are currently operational — the 471 MW Monterrey II and 1.0 GW Monterrey III (also known as Dulces Nombres) — and will be switching their gas supply from SISTRANGAS to the Nueva Era system, which means they do not represent ‘new’ gas demand. Only when the two new CCGTs begin operating will there be an additional 85 mmcf/d of demand from each plant, assuming a 60% utilisation rate. The under-construction 850 MW Escobedo (Noreste) CCGT is set to start up in January 2019, and the 870 MW El Carmen CCGT is due online in September 2019.
The strength in Mexican LNG takes at a multi-year high of 1.1 bcf/d (+0.4 bcf/d y/y) in July and at a very healthy 0.9 bcf/d reading this month highlight the underlying need for LNG to backfill demand due to the ongoing infrastructure bottlenecks. These imports were even higher than the 0.7 bcf/d in LNG Mexico took from June 2017 to June 2018 on average, before the Nueva Era and El Encino–Mazatlan systems became operational.
In the withdrawal season, we expect pipeline imports to grow 0.5-0.6 bcf/d y/y and LNG imports to stay flat y/y at 0.7 bcf/d amid the scheduled start-up of projects such as the 1.5 bcf/d El Encino-La Laguna and the 1.2 bcf/d La Laguna-Aguascalientes, which will debottleneck some flows as well as the Texas-Tuxpan.
CFEnergia intends to stop tendering LNG
Yesterday, it was heard that CFEnergia intended to stop tendering LNG cargoes into Manzanillo and Altamira by year end 2018 or early 2019 pending new pipeline capacity, specifically the 2.6 bcf/d Sur de Texas-Tuxpan and a reversal of TransCanada’s 0.5 bcf/d Guadalajara-Manzanillo line. A halt to LNG tenders would represent a significant departure from current LNG imports. In the most recent round of earnings calls, TransCanada was guiding for its joint 2.6 bcf/d Sur de Texas-Tuxpan pipeline with IEnova to come online in late 2018. Valley Crossing, which is slated to feed the project from the US side of the border, was also confirmed for a Q4 18 start-up by Enbridge. Previously, it had been noted that the initial capacity ramp on Sur de Texas-Tuxpan would be 1.6 bcf/d of its 2.6 bcf/d nameplate capacity.
Thus far in 2018, LNG imports into Altamira (0.7 bcf/d capacity) have ranged 0.1-0.5 bcf/d and averaged 0.4 bcf/d. Cargoes into Altamira have typically signalled domestic bottlenecks, given the area is connected to the grid. Given that the SISTRANGAS pipeline system in Altamira should be tied into the Sur de Texas-Tuxpan pipeline, service on the 2.6 bcf/d pipe should obviate the need for higher priced LNG imports.
By contrast, LNG imports at Manzanillo (0.5 bcf/d capacity), which have also averaged 0.4 bcf/d thus far this year, have been far more regular. A reversal of flows on the 0.5 bcf/d Guadalajara-Manzanillo pipeline is supposed to aid the terminal in displacing LNG with pipeline gas. This facility has always tended to take a steady supply of LNG given lack of tie-ins to the pipeline grid in the immediate area.
Nonetheless, given the sheer volume of LNG that is being imported recently—averaging 0.8 bcf/d year-to-date—displacing them could be overly optimistic in the short term and a more moderate scale back in LNG imports is likely a safer bet. As we have indicated for some time, projects downstream of Sur de Texas-Tuxpan still face delays, including Tula-Villa de Reyes and Tuxpan-Tula (see: Email alert- Q2 18 midstream earnings pipeline update: No unexpected new gas takeaway delays, 14 August 2018). Granted the full capacity on the 2.6 bcf/d of Sur de Texas-Tuxpan does not need to flow to supplant 0.4 bcf/d of average LNG takes at Altamira. However, an ongoing atmosphere of delays to projects and even the withdrawal of CFE in late May from the proposed Pajaritos floating re-gas terminal underscore how quickly timelines can change. For our reference case, we have lowered H2 19 LNG imports on the announcement, but assume some cargoes will still be necessary to feed demand and aid in debottlenecking.
Tuxpan-Tula late but back on track?
The 0.9 bcf/d Tuxpan Tula, which will feed gas from the 2.6 bcf/d offshore South Texas-Tuxpan system, was initially slated for a November 2017 completion but has been delayed several times. TransCanada’s most recent earnings release pushed the start-up date back to 2020 from a Q4 19 completion, as we had expected earlier this year (see Data review: Mexico – Waiting…, 30 May 2018). This followed the cease of construction in November 2017 due to a court ruling on environmental concerns raised by local communities and ‘right of path’ issues.
On 20 August, it was reported that the pipeline works would resume following an agreement between the local communities and TransCanada. The deal reportedly includes infrastructure projects such as the rehabilitation of roads and construction of sport fields and community centres to be developed in those communities within the pipeline trajectory and financed by TransCanada. However, additional reports have emerged in recent days of more pushback against the project, though no new court rulings have resulted so far. Even assuming a speedy return to construction, the terrain the pipe must transverse poses its own challenges to completion as it will cross the mountain ridges of Otomi-Tepehua in the State of Hidalgo.
|Fig 1: SISTRANGAS US piped gas imports, bcf/d||Fig 2: El Encino-Mazatlan flows, bcf/d|
|Source: CENAGAS, Energy Aspects||Source: TransCanada, Energy Aspects|