We forecast cross-border flows from the US to Mexico will be largely in line with present flows of 4.9 bcf/d in Q1 19, a 0.6 bcf/d y/y increase. Risks throughout 2019 continue to be linked to the ultimate timeliness of pipeline infrastructure. As we had long expected, the 2.6 bcf/d Sur de Texas-Tuxpan will not be ready by end-year and could start flowing gas in Q1 19 instead, although works joining it to its feeder pipeline, the 2.6 bcf/d Valley Crossing, appear to be delayed. Additionally, downstream infrastructure constraints will cap full usage of the 2.6 bcf/d Sur de Texas-Tuxpan to a theoretical maximum of 1.4 bcf/d. Once online, flows from Sur de Texas-Tuxpan should replace some Altamira LNG imports, which have been slowing down in recent months despite acute gas shortages in southern Mexico. Usage of Manzanillo’s LNG terminal will continue to trend at the 0.3-0.4 bcf/d level it has averaged since 2017 until the Wahalajara pipeline system becomes operational, but start-up of that pipe was most recently delayed by a further two months to May 2019. We peg LNG imports at 0.6 bcf/d for the remainder of this winter and expect a dip to 0.5 bcf/d during the 2019 injection season as Sur de Texas-Tuxpan and Wahalajara potentially ramp up.
Valley Crossing’s latest FERC construction update for the 13–26 November period indicated joint hydrostatic testing to join the Valley Crossing and Sur de Texas-Tuxpan pipes has taken place, but surveys to determine the depth of the pipeline are still yet to occur. Based on reporting filed with FERC, progress for some of these final stages of development appears to be lagging, as reporting for the end of October indicated that hydrostatic testing was meant to be concluded in the first week of November. The surveys to determine the final pipeline depth are now scheduled to be completed during the next reporting period of 27 November–10 December. The pipeline could start ramping up as early as Q1 19. However, as we have previously discussed in Monthly: Mexico – The baby and the bath water, 20 November 2018, the 2.6 bcf/d pipeline system would initially only have a theoretical maximum capacity of 1.4 bcf/d due to its limited downstream connections. Even then, we do not expect the pipeline to be running at maximum flow following start-up.
We forecast total pipeline imports to average 4.9 bcf/d in Q1 19. This is a hefty 0.6 bcf/d increase compared to last year, when cross-border flows at the very start of 2018 were capped due to cold weather that prompted record-high US stockdraws and Kinder Morgan announced a flexibility warning on its 0.64 bcf/d Mier-Monterrey pipeline.
Flows on Sur de Texas-Tuxpan will depend on its tie-ins to the SISTRANGAS system in Altamira and Monte Grande. No further details have been released on the capacity or progress of the Altamira connection, although we suspect it is nearing completion and will be operating in H1 19. As the interconnection is to ultimately replace Altamira LNG imports, which currently have a maximum injection capacity into SISTRANGAS of 0.9 bcf/d (based on SISTRANGAS data available from July 2017 to date), we assume the interconnection with the Sur de Texas-Tuxpan will have the same capacity. The other connection at Monte Grande is expected to be completed by year-end with 0.5 bcf/d capacity according to SENER, though there has been no recent news on this project.
LNG imports at the Altamira terminal have already slowed in the last few months, with October and November imports 0.1 bcf/d lower y/y, despite several reports pointing to acute gas shortages in southern Mexico. We expect LNG imports to average 0.6 bcf/d (-0.1 bcf/d y/y) in Q1 19 and 0.5 bcf/d (-0.2 bcf/d y/y) during summer 2019, as we still expect LNG to be needed to meet Mexican gas demand since infrastructure bottlenecks and start-up delays persist.
Fermaca’s Wahalajara system—comprised of the 1.5 bcf/d El Encino-La Laguna, 1.2 bcf/d La Laguna-Aguascalientes and 0.9 bcf/d Villa de Reyes-Aguascalientes-Guadalajara—was most recently expected to be completed in March 2019, but it has now been delayed an additional two months into the injection season. We thought this pipe might suffer an additional delay past its March 2019 expected in-service date given rumoured financial issues surrounding the project. The completion of the Wahalajara system along with the reversal of flows on TransCanada’s 0.5 bcf/d Guadalajara-Manzanillo will eventually replace LNG imports into the Manzanillo terminal. Given the most recent pushback on the Wahalajara system, where further delays are still a risk, and a lack of news on the reversal works of the 0.5 bcf/d Guadalajara-Manzanillo, we expect LNG imports at Manzanillo to continue until pipeline flows fully ramp up— though it remains difficult to tell when exactly that will happen.
Carso Electric’s 1.2 bcf/d San Isidro-Samalayuca is now also expected to become operational in H2 19, vs its previous Q2 19 deadline, as the project awaits a court decision due to right-of-path issues. Factoring in infrastructure delay risks, our cross-border pipeline flow forecasts remain mostly unchanged from last month. We expect pipeline imports to trend at 5.5 bcf/d this upcoming injection season (+0.7 bcf/d) and peak summer flows to reach 5.6 bcf/d.
The 0.9 bcf/d Tuxpan-Tula and 0.9 bcf/d Villa de Reyes-Tula, which were designed to transport gas from Sur de Texas-Tuxpan into central Mexico, have now been confirmed to be postponed indefinitely, although not cancelled. Through an open letter sent to various Mexican news outlets, project developer TransCanada cited rising costs due to extortion and illegalities with the local authorities in the state of Hidalgo, which have led to multimillion dollar losses. In the state of Puebla, construction is said to also be waiting on the completion of consultations with indigenous groups by SENER, a process that we have long argued is complex and can lead to delays of over a year.
The future of CCGTs
Mexico’s new president, Andres Manuel Lopez Obrador (AMLO), has pledged to ‘save’ CFE by planning a technical and administrative audit of the state company while stopping the closure of older conventional thermal plants in favour of modernising them instead. Other plans include investing 20 million Mexican pesos ($1 million) to upgrade 60 hydroelectric power plants and further expanding solar, wind and geothermal capacity. In recent speeches by AMLO and CFE’s new head Manuel Bartlett, there have been no mention of CCGT and cogeneration plants, which are in development in order to decommission some of CFE’s oldest and most-polluting power plants. While the change in administration will potentially stall the development of any new or proposed CCGT and cogeneration projects, it seems unlikely to affect projects currently under construction.
We have identified 2.5 GW of CCGT generation capacity with a January expected in-service date, which would add 0.25 bcf/d of power sector gas demand (assuming a 60% utilisation rate). However, slippage beyond expected in-service dates is still a concern for 75% of this capacity. The 0.79 GW Empalme II in Sonora, which feeds its gas from IEnova’s Sasabe-Guaymas pipeline, appears to be ready to start operations in January as scheduled. The power plant is currently in the testing phase and has been taking around 65 mmcf/d of gas since the start of the month. Iberdrola’s 0.85 GW Escobedo (Nuevo Leon) and 0.89 GW Topolobampo II (Sinaloa) CCGTs are both scheduled for a January 2019 start-up, although there has been no recent update on the projects. Escobedo will add 0.1 bcf/d of gas demand (assuming a 60% utilisation rate) on the Nueva Era pipeline, while Topolobampo II (Sinaloa) will feed 0.1 bcf/d from the recently operational El Encino-Topolobampo pipeline.
A lack of transparency on Nueva Era pipeline flows means it is currently not possible to directly monitor any gas injections into the Escobedo CCGT. From what we can monitor through TransCanada’s electronic bulletin, around 0.1 bcf/d has been flowing through El Encino-Topolobampo and into Mazatlan through El Oro-Mazatlan this month—in line with flows since the pipeline commenced operations in July—although there is still no clear reference to deliveries into Topolobampo from El Oro, making it difficult to identify any gas flowing into the Topolobampo II CCGT.
|Fig 1: Manzanillo LNG imports, bcf/d||Fig 2: Empalme II CCGT gas feed, mmcf/d|
|Source: Kpler, Energy Aspects||Source: IEnova, Energy Aspects|