We are delighted to present our new Monthly publications, formerly known as Data Review, which will share our short-term forecasts. Users licensed for the data service can access our Mexico gas balances by clicking here.
Following confirmation this month of a fresh wave of delays to the start-up of pipeline projects, we maintain our conservative outlook for heating season imports to average 4.8-4.9 bcf/d (+0.5 bcf/d y/y). This is around the rate of gas flow currently crossing the border. In recent weeks, the full completion of the Wahalajara system was pushed back to March 2019 from a previous end-2018 date, while no news recently on the development of the 0.5 bcf/d Samalayuca-Sasabe makes a December operational date highly unlikely. The 2.6 bcf/d Valley Crossing pipeline, which feeds the 2.6 bcf/d Sur de Texas-Tuxpan, has been deferred until April 2019 as we discussed last month. In light of growing risks to project deadlines, we have lowered our forecast for injection season 2019 pipeline imports, from 5.5 bcf/d last month to 5.2 bcf/d, reaching 5.3-5.4 bcf/d during the cooling season. The recent infrastructure setbacks make CFEnergia’s ambitious plan to stop tendering LNG by end-2018 or early 2019 even more unlikely. Our 0.7 bcf/d LNG imports forecast for this heating season remains unchanged and we have increased our forecast for LNG takes in the 2019 injection season to 0.7 bcf/d.
We have long maintained a conservative outlook on the growth of Mexican pipeline imports due to consistent delays that have plagued the development of pipeline infrastructure. And despite CFEnergia’s announcement in August of its intention to stop tending LNG cargoes by end-2018 or early 2019 pending new pipeline capacity, we maintained a view of limited growth in imports. Through October, and just two months away from expected completion, various reports emerged announcing that parts of the Wahalajara system—composed of the 1.3 bcf/d Ojinaga-El Encino, 1.2 bcf/d La Laguna-Aguascalientes and 0.9 bcf/d Villa de Reyes-Aguascalientes-Guadalajara—are now to be delayed to a March 2019 start-up, which we still view at risk of slipping further.
While it is still unclear if the northern section of the system, the 1.5 bcf/d El Encino-La Laguna, is now finalised at all, a few weeks ago it was announced that the southern sections of La Laguna-Aguascalientes and Villa de Reyes-Aguascalientes-Guadalajara were now expected no earlier than March 2019. The 1.5 bcf/d El Encino-La Laguna has been marked as ‘operational’ by SENER’s monthly infrastructure update since March 2018, but evidence suggests otherwise.
Several local sources claimed earlier this year that the second phase of the line, which runs from Delicias into La Laguna, only commenced construction works mid-year, while there have been various reports that works on a lateral pipeline named Dinamita in Gomez Palacio, near Laguna, has been suspended. A court ruling halted works at the Dinamita lateral due to environmental concerns, as the pipeline is planned to go through a protected natural area. Additionally, El Encino-La Laguna’s developer, Fermaca, does not currently provide any flow data in its electronic bulletin board, while data on available volumes for the Tarahumara pipeline show gas only feeding into the El Encino-Topolobampo system at the El Encino connection (see Fig 1). The Ojinaga-El Encino pipeline, which has been mostly idle since it became operational in June 2017, reported a rise in volumes last week and has been consistently flowing around 0.15 bcf/d into El Encino-Topolobampo from 18 October, except for one day.
Furthermore, the 0.5 bcf/d Samalayuca-Sasabe pipeline, which crosses the states of Chihuahua and Sonora in Mexico’s northwest, seems very unlikely to meet its latest December deadline. We think the completion of the line will be moved to Q1 19 at the earliest, as project developer Carso Electric is not able to provide any sort of update on the project.
The start-up of Valley Crossing, the feeder pipe of the large 2.6 bcf/d Sur de Texas-Tuxpan line, has also been postponed (as we reported last month), thus delaying when Sur de Texas-Tuxpan will be able to first flow gas. Meanwhile, there has also been a delay in awarding CFE’s request for offers (RFO). The three-year supply RFO at the Trans-Pecos Waha header, which was announced released on 17 July, intended for the supply to start between 1 October and 1 November, with requested volumes for 0.13–0.15 bcf/d in Q4 18, 0.2–0.3 bcf/d in Q1 19, 0.6–0.9 bcf/d in Q2 19 to Q4 19, and 0.95–1.15 bcf/d in 2020 and 2021.
While we estimate October cross-border flows at 4.8–4.9 bcf/d (+0.6 bcf/d y/y), our withdrawal season projection of pipeline imports averaging 4.9 bcf/d (+0.5 bcf/d y/y) remains almost unchanged. On the continuing risks of delays on projects, we have lowered our injection season forecast of imports to 5.2 bcf/d from 5.5 bcf/d last month, reaching 5.3–5.4 bcf/d in the summer months. Upside potential to our projections could come from timely completion and quicker-than-expected ramp-up of at least part of the projects slated now for a H1 19 completion, such as the Wahalajara system or the Sur de Texas-Tuxpan.
LNG is not going away
Acute gas supply shortages have been reported in southeast Mexico, where concerns are rising as PEMEX is failing to meet gas nominations amid declining domestic output. As the debottlenecking of pipelines is postponed, several industrials in Veracruz—one of the country’s main industrial hubs—have voiced growing concerns as they are priced out of accessing LNG, with CENAGAS charging large penalties for a system balancing fee, which increases LNG prices by as much as 50%. The initial concerns were on reports that PEMEX would not be able to supply any gas in November due to an unplanned pipe outage. On 24 October, PEMEX announced that it will be able to supply 0.1 bcf/d in November through first-hand sales.
The outage raised serious concerns among industrial consumers, but shortages in the southeast are not uncommon as PEMEX domestic production declines. Until the Sur de Texas-Tuxpan pipeline is completed at some point in Q2 19, along with the reconfiguration of the Cempoala compressor station to flow gas from north to south into Tuxpan (Veracruz), the region will continue to struggle with supply. The reconfiguration could reportedly take as little as two weeks. Additionally, the completion of the 0.9 bcf/d Tuxpan-Tula in 2020 will provide further debottlenecking.
LNG imports were mostly flat y/y in September at 0.7 bcf/d, while preliminary data from Kpler point to a 0.1 bcf/d y/y decline in October takes to 0.6 bcf/d. We expect LNG imports to stay at 0.7 bcf/d across the withdrawal season, unchanged from our forecast last month. Projected LNG takes for the 2019 injection season now stand at 0.8 bcf/d, which is 0.3 bcf/d higher than last month’s forecast, as LNG will continue to backfill demand on declining PEMEX domestic production and delays to pipeline infrastructure.
Not all bad news
The deeply troubled 0.5 bcf/d Guaymas-El Oro pipeline operated by IEnova, which has been under force majeure since August 2017 after an indigenous tribe removed a section of pipe, is now operating, with flows being diverted from the initial path. The pipeline, which first became operational in April 2017, stopped operating in August 2017 due to damage caused following clashes with the local Yaqui indigenous community in Loma de Bacum. A subsequent court ruling then prevented IEnova from carrying out necessary maintenance.
Earlier this month, the conflict between IEnova and the Yaqui was resolved, and the line will now operate in two separate sections (see Fig 1). The first section transports gas from the Sasabe-Guaymas (Sonora north) pipeline to Empalme. Here, the operating 770 MW Empalme I CCGT is currently consuming 47 mmcf/d on average and the under-development 790 MW Empalme II CCGT, which will require 80 mmcf/d (based on 60% utilisation rate), is expected to start in January 2019. IEnova flow data show that Empalme II is already taking minimal flows of 10-20 mmcf/d, indicating the power plant is undergoing its testing phase and is likely to meet its January 2019 target start-up.
The second section of the Guaymas-El Oro will now transport gas south to north, from El Oro up to Ciudad Obregon, just south of Loma de Bacum. IEnova flow data show less than 1 mmcf was transported on 4 October, but we expect these volumes to ramp up slightly in the coming months as Naturgy has confirmed it has expanded its gas networks into Ciudad Obregon, Cajeme and Navojoa.
|Fig 1: Mexican pipeline infrastructure map|
|Source: Company websites, CENAGAS, Energy Aspects|