TransCanada’s earnings call on 14 February announced another delay to the start-up of the 2.6 bcf/d Sur de Texas-Tuxpan pipeline, to early Q2 19 from Q1 19. The news has little effect on our balances, which already factored in possible delays and a slow ramp-up due to limited connections downstream. As such, we maintain our projection for Mexico’s total pipeline gas imports to hit 5.3 bcf/d (+0.7 bcf/d y/y) in injection season 2019. This is higher than the 4.9-5.0 bcf/d that is currently crossing the border and thus dependent on some ramp-up of Wahalajara flows. We expect that peak summer flows will rise to 5.6 bcf/d (+0.8 bcf/d y/y), but further setbacks to pipeline infrastructure additions continue to provide downside risk here. We forecast that LNG imports will be lower y/y by 0.2 bcf/d at 0.5 bcf/d this injection season, unchanged from last month’s forecast.
The Sur de Texas-Tuxpan US feeder pipeline—Valley Crossing—the underwater connection between the two pipes, Sur de Texas-Tuxpan’s offshore construction works and at least one downstream connection (a 0.5 bcf/d SISTRANGAS connection at Monte Grande, Tuxpan) have all been confirmed as complete. Despite that, first flows on the 2.6 bcf/d Sur de Texas-Tuxpan have been delayed from Q1 19 to early Q2 19. In its recent earnings call for Q4 18, the operator, TransCanada, did not elaborate on the nature of the delay, but we believe that it stems from permitting delays reported by SENER in its latest pipeline infrastructure update on 20 February.
As we have long argued, ramp-up on the 2.6 bcf/d Sur de Texas-Tuxpan and Valley Crossing system is likely to be gradual, with initial volumes capped by downstream connections. Given maximum injection levels into SISTRANGAS at Altamira and the 0.5 bcf/d capacity at Monte Grande, Sur de Texas-Tuxpan will have around 1.4 bcf/d of delivery capacity when it first starts. Still, extra supply into southeast Mexico, now that the 0.4 bcf/d Cempoala compressor station has been reconfigured to flow gas from north to south, will be able to alleviate the acute gas shortages suffered by industrial consumers in the region.
In the meantime, however, LNG imports at Altamira, which will eventually be replaced by pipeline flows from Sur de Texas-Tuxpan, will continue. CFE announced a tender on 20 February seeking three cargoes into Altamira of around 9 bcf (0.2 Mt) between 6 March and 22 April, probably as a result of the delays affecting Sur de Texas-Tuxpan.
As for the 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—there has been no recent update on the viability of the currently expected May 2019 start-up, although we remain cautious and do not disregard the chance of further delays. Once online, the Wahalajara system will provide much-needed debottlenecking in central Mexico, provide some takeaway of Permian gas, and will also begin to replace Manzanillo LNG takes, with flows reversing direction on TransCanada’s 0.5 bcf/d Manzanillo-Guadalajara pipeline. LNG imports at Manzanillo in January and February so far are flat y/y at 0.15 bcf/d each month according to Kpler cargo-tracking data. Mexican LNG imports over the injection season will average 0.2 bcf/d lower y/y at 0.5 bcf/d, as delays to pipe infrastructure and slow ramp-ups will mean LNG is needed to meet demand.
Carso Electric’s 0.5 bcf/d Samalayuca-Sasabe pipeline, where construction has been halted since December 2018 due to a court injunction, seems to be running into further problems. A judge ruled in late December that works should halt due to missing land and construction permits and local disputes surrounding ejidos (areas of communal land). Earlier this month, Carso Electric said works were halted in 16 different places, amounting to 53 miles out of the project’s total 404 miles. The project was most recently expected to start flowing gas in H2 19, two years after its initially planned start-up of November 2017, but even this latest date looks unrealistic now.
A project that could finally start up this year is the Proyecto Integral Morelos (PIM), following today’s news that it has been backed by 59% of respondents to a public consultation in the states of Tlasxcala, Morelos and Puebla. PIM consists of a 724 MW CCGT (Centro 1), a 0.3 bcf/d gas pipeline, a power transmission line and a water pipeline—all of which are completed—and aims to provide power to Morelos, the only Mexican state without its own power generation capacity. Originally, the project also included a second CCGT, the 644 MW Centro II, although that never went ahead. Despite all PIM’s components being fully constructed, the project was halted in 2017 amid environmental concerns from local communities about the availability and pollution of water, as well as safety concerns due to the gas pipeline’s proximity to populated areas and the Popocatepetl volcano. The Mexican president today gave PIM the green light following the consultation result, but operation cannot begin until various court injunctions against it are resolved. PIM would add around 72 mmcf/d of demand, assuming that the Centro I CCGT runs at a 60% utilisation rate.
Some new demand has already materialised, with CENACE confirming that Iberdrola’s 850 MW Escobedo CCGT and Abengoa’s 262 MW Abent 3T CCGT in the state of Tabasco entered operations in H2 18. Both plants, assuming a 60% utilisation rate, will add a combined 0.11 bcf/d of gas demand.
Given our expectations on new infrastructure, we expect Mexican pipeline imports to average 5.3 bcf/d (+0.7 bcf/d y/y) during the upcoming injection season, with peak summer flows reaching up to 5.6 bcf/d. Downside risk to those numbers comes mainly from the potential for further delays to the 2.6 bcf/d Sur de Texas-Tuxpan and Wahalajara systems.
|Mexican pipeline infrastructure map|
Note: State of Hidalgo highlighted in red
Source: Company websites, CENAGAS, Energy Aspects