The start-up of the 2.6 bcf/d Valley Crossing pipeline, which feeds the 2.6 bcf/d Sur de Texas-Tuxpan pipeline, is facing a delay to April 2019 from its previous year-end stated in-service date. The delay of the feeder pipe has a significant bearing on the massive Sur de Texas-Tuxpan pipe and supports our conservative view of moderate growth in cross-border flows during this heating season. We anticipate pipeline imports to average 5.0 bcf/d during winter, only slightly higher than the 4.7-4.8 bcf/d we believe is currently crossing the border. Valley Crossing’s delay only highlights how ambitious CFEnergia’s announcement to stop tendering LNG in late 2018 or early 2019 actually is. We continue to expect LNG imports to backfill demand, averaging 0.6 bcf/d this heating season.
Our outlook for the heating season remains conservative in terms of gas import ramp-ups from the US although there are a number of major pipeline projects that are still slated to come into service over the coming two quarters (see Fig. 11). It now appears the Sur de Texas-Tuxpan marine pipe is at risk of delay, with start-up likely to slip into the injection season due to delays to the Valley Crossing pipeline. Our balances contain a near 0.6 bcf/d y/y gain for heating season pipeline trade, to 5.0 bcf/d. While that headline growth number appears large, that figure only represents a small sequential gain from the volumes already flowing.
In addition, the chronically delayed El Encino-La Laguna—sourcing gas from the Permian—is still in the calendar to start up this heating season and should allow for some incremental flows to Mexico when it enters service. Our understanding is that phase 1 of the pipe has been mechanically complete since this summer. Local reports have stated construction works on a lateral pipeline in phase 2 have paused on concerns that the project’s trajectory runs through a protected nature area. Given the pipe’s current status appears unclear, the end-year timeline appears at increasing risk. We still anticipate that volumes flowing from West Texas will be relatively minor, and CFE’s recent request for offers (RFO) volumes support our view for the heating season.
On 17 July, a CFE subsidiary released a RFO for a three-year supply deal at the Trans-Pecos Waha header. For Q4 18 and Q1 19, the volumes requested were 0.13-0.15 bcf/d and 0.2-0.3 bcf/d respectively. As the heating season ends, those requested volumes ramp up, with CFE looking for volumes of 0.6-0.9 bcf/d for Q2 19 to Q4 19 as it anticipates debottlenecking on Mexican pipelines to progress.
Currently, a lack of accurate data is clouding the true level of cross-border flows to Mexico. The peak cooling season additions on the Nueva Era cross-border pipeline—feeding from South Texas and the El Encino-Topolobampo, which ultimately can feed from the Permian—are difficult to track, given the lack of pipeline flow data on Texas intrastates.
We will have to wait for the latest EIA monthly data for July and August to confirm whether our conservative estimate of cross-border flows at 4.7-4.8 bcf/d from August and September captures all flows on new pipes. Such a figure does represent a 0.7 bcf/d y/y gain on a low baseline that reflects the effects of Hurricane Harvey. As we have previously argued, most of that growth appears to be driven by imports into the SISTRANGAS system, as month-to-date flows stepped up by 0.5 bcf/d y/y to 2.9 bcf/d, with KM Border pipeline and NET Mexico flows leading the increases rather than new pipeline additions.
|Fig 1: SISTRANGAS US imports and LNG sendout, bcf/d|
|Source: CENAGAS, Energy Aspects|
Gas flows through the El Encino-Mazatlan system—comprised of the 0.7 bcf/d El Encino–Topolobampo and 0.2 bcf/d El Oro-Mazatlan pipes—continue to be little more than 0.1 bcf/d, indicating that gas is not making its way down the line to Mazatlan at full capacity, though some could still be diverted at Topolobampo.
Local news sources have reported that dust issues in recent months within the El Oro-Mazatlan pipe have caused faults at the 300 MW Jose Aceves Pozos thermal power plant in Mazatlan, which has recently been converted to burn natural gas instead of fuel oil. The dust issue seems to have been resolved, and the plant has finished the testing phase and commenced commercial operations as of mid-September, running on 60% gas and 40% fuel oil.
More gas could be flowing into Topolobampo, as the El Encino-Topolobampo pipe has an overall capacity of 0.7 bcf/d. However, flow data from the Tarahumara pipeline, which feeds the system at El Encino, shows no more than 0.1 bcf/d is being transported since the July start-up of El Encino-Topolobampo. The 320 MW fuel oil-to-gas converted thermal power plant, Juan de Dios Batiz Paredes in Topolobampo, has been confirmed to be operating and burning gas, but that would only amount to as much as 0.03 bcf/d of consumption at 50% utilisation. We still expect that flows will only significantly ramp up once the two greenfield CCGTs in Topolobampo start operations—the 890 MW Topolobampo II scheduled for January 2019 and the 777 MW Topolobampo III expected in January 2020. At full capacity utilisation, both plants would burn some 0.3 bcf/d of gas.
For the injection season, we anticipate an additional ramp-up on infrastructure, including the Sur de Texas-Tuxpan line, and some measured y/y uplift from pipes sourcing West Texas gas. However, as we have long maintained, some lines downstream of the Sur de Texas-Tuxpan will not dovetail in terms of timeline, including Tuxpan-Tula and Tula-Villa de Reyes. We anticipate a 0.9 bcf/d y/y uplift for the injection season, with volumes at 5.5 bcf/d, reaching toward 5.7-5.8 bcf/d during the peak cooling season.
Valley Crossing delay: Domino effects
Valley Crossing, which feeds from the US side of the border, and Sur de Texas-Tuxpan both had company guidance for a late 2018 in-service date, according to the latest round of earning calls. However, Valley Crossing’s developer Enbridge recently informed FERC that the 1,000-foot pipe is now likely to be delayed and requested an extension of its construction and operating permit to April 2019 instead. This is six months later than the previously planned October 2018 start-up. Without Valley Crossing’s small stretch of pipe, the Sur de Texas-Tuxpan will have no feed, making its November 2018 in-service date unlikely, as far as project ramp-up is concerned.
The 0.9 bcf/d Tuxpan-Tula is now expected to start operations in 2020, following a court ruling in November 2017 that suspended construction works due to environmental concerns, as its path is supposed to cross the mountain ridges of Otomi-Tepehua in the state of Hidalgo. There have been no updates from the developer but local news sources reported in late August that TransCanada managed an agreement between the local communities, which allowed construction to resume.
Also, works on the 0.9 bcf/d Tula-Villa de Reyes, which connects to Tuxpan-Tula, continue to be paralysed due to a court ruling. The project was postponed from a year-end completion to 2019 by project developer TransCanada. Works were halted in April this year due to archaeological findings on the pipe’s route.
Still tendering for LNG
For its part, CFEnergia has taken a very optimistic outlook on a quick ramp-up of new pipeline infrastructure. It announced its intent to stop tendering LNG cargoes in late 2018 or early 2019 on the completion of new pipeline infrastructure, specifically Sur de Texas-Tuxpan, and the reversal of flow direction on TransCanada’s 0.5 bcf/d Manzanillo-Guadalajara. As we noted in our E-mail alert: Intention versus action: CFEnergia intends to stop tending LNG, 7 Sep 2018, such a timeframe seemed too optimistic. Considering the updated timeframe for Valley Crossing, shutting out all LNG volumes this withdrawal season will not be possible. In fact, CFE announced on 24 September a tender for three cargoes to be delivered through October to December at Manzanillo, which adds to two previous tenders for the same period.
|Fig 2: Recent CFE LNG tenders|
|Source: Various, Energy Aspects|