While current cross-border flows into Mexico are pegged near 4.9 bcf/d, we expect volumes will step up to average 5.3 bcf/d (+0.6 bcf/d, y/y) this injection season. Although timing risks remain high, our growth number is underpinned by expectations of the start of flows through the 2.6 bcf/d Sur de Texas-Tuxpan in mid-Q2 19. Growing social unrest against the Wahalajara pipeline system in the state of Durango and a lack of information on its progress by project developer Fermaca suggest that a May start-up is unlikely. If a court order halting the project in order to allow for consultations with local communities is issued, it could stall its in-service date to year end, if not later. As we expect Manzanillo and Altamira to continue backfilling demand, we forecast LNG imports to average 0.5 bcf/d this injection season (-0.3 bcf/d y/y).
While the 2.6 bcf/d Sur de Texas-Tuxpan should be near completion, the start-up of the Wahalajara pipeline system this injection season is increasingly at risk. The ramp-up in Sur de Texas-Tuxpan flows this upcoming season supports our mostly unchanged view of a 0.6 bcf/d y/y increase in cross-border flows to average 5.3 bcf/d. Though CFE recently stated the Sur de Texas-Tuxpan pipeline will be in service between 15 April and 1 May, our balances currently assume first flows in late May or early June. However, we do not rule out further pushbacks or an even slower than expected ramp-up, as the completion of connections downstream is still unclear. We peg injection season LNG imports at 0.5 bcf/d (-0.3 bcf/d y/y), as we assume Manzanillo LNG imports will continue in the absence of flows through Wahalajara. Further timing or connection risks on the Sur de Texas-Tuxpan cannot be ruled out, and we expect some LNG imports at Altamira to continue backfilling demand, especially in the absence of Mexican reservoir storage.
CFE tendered for three cargoes into Altamira, where LNG imports will eventually be replaced by pipeline flows from the Sur de Texas-Tuxpan, in late February for delivery between 6 March and 22 April. Two of those cargoes unloaded already on 6 March and 27 March. On 15 March, CFE tendered for an additional Altamira cargo to be delivered between 16–17 April. If we assume the two remaining cargoes into Altamira are imported within their tendered dates, Altamira could maintain sendout through the first half of May. As the Altamira regasification plant could maintain injections into the system until at least mid-May, our balances assume a late May or early June start of flows on Sur de Texas-Tuxpan. If, however, the pipe does not make it to market by that time, injection season growth in US Mexican exports in our balances would have to be revisited.
Reports of growing social unrest since early February against the Wahalajara pipeline system in the state of Durango—the state through which sections of the 1.5 bcf/d El Encino-La Laguna and 1.2 bcf/d La Laguna-Aguascalientes pass—make the latest May start-up date unlikely (see E-mail alert: Further delays to Wahalajara system highly likely, capping growth prospects for injection season US pipeline exports to Mexico, 19 March 2019). Increasingly, the discussion is centred around the possibility of whether the start-up of the Wahalajara system will even take place this injection season rather than when it will start-up. While there have been no further updates from local sources on the protests, if the segments under dispute in Durango result in court orders halting construction activity, the delay could potentially lag the in-service timeline to year-end, if not later. Delays stemming from collective land ownership issues have typically lasted a year or longer. Release in the next few months of CENAGAS’s fourth revision to the five-year 2015–2020 SISTRANGAS expansion plan could provide some additional information on the status of the system.
Negotiations and renegotiations
Various pipelines such as the 0.5 bcf/d Ramal Tula, Carso Electric’s 0.5 bcf/d Samalayuca-Sasabe along with TransCanada’s 0.9 bcf/d Tuxpan-Tula and 0.9 bcf/d Tula-Villa de Reyes form a group of halted projects due to ongoing land disputes with ejidos (communal landholders). Some of these projects are also a point of focus for Mexico’s recently elected president Andrés Manuel López Obrador (AMLO), who has pledged to renegotiate pipeline contracts between CFE and developers Carso Electric, IEnova and TransCanada.
AMLO considers the current take-or-pay contracts with the CFE unfair. The contracts require the CFE to make payments to developers when construction of a pipeline has been halted due to force majeure events, such as civil disturbances, riots, blockades, insurrections and sabotage. It remains unclear how these contracts would be amended, if at all, but some developers such as Carso Electric have urged AMLO’s administration to finalise works on the halted pipelines. Carso Electric’s 0.5 bcf/d Samalayuca-Sasabe pipeline construction has been halted since December 2018 due to a court injunction owing to missing land and construction permits as well as local disputes with ejidos. First flows on the pipeline were expected to begin in November 2017 but are now unclear due to the legal standstill.
However, AMLO’s ability to resolve such legal standstills between ejidos and project developers is limited. The Proyecto Integral Morelos (PIM) is still halted despite being okayed by AMLO. Last month’s public consultation resulted in 59% of respondents backing the project, but protests against its completion continue, and works are still blocked by three court injunctions.
Our conservative view on the growth of cross-border flows into Mexico remains unchanged as we continue to factor in delays for upcoming pipeline infrastructure. We peg injection season cross-border flows into Mexico at 5.3 bcf/d, before stepping up to 5.7 bcf/d (+1 bcf/d y/y) during the withdrawal season. We assume a H2 19 start to flows through the Wahalajara system but still remain cautious, as a court injunction against the project would potentially delay the project even more. The 0.5 bcf/d Samalayuca-Sasabe and 0.9 bcf/d Tula-Villa de Reyes are earmarked for a H2 19 completion, but construction on both projects remains halted due to court rulings. They are therefore not considered in our balances.
The demand side is supported by an additional 2.5 GW of CCGT capacity to be online by the end of Q3 19, which all feed from already operational pipelines. Following regular gas takes from the 0.8 bcf/d Sasabe-Guaymas, the 0.8 GW Empalme II CCGT has now entered operations, adding around 80 mmcf/d of demand. Iberdrola’s latest earning call announced the 0.8 GW Topolobampo II CCGT entered operations in Q1 19, which feeds from the 0.7 bcf/d El Encino-Topolobampo. Due to the lack of a constant increase in flows from the data we are able to monitor daily through El Encino-Topolobampo, we believe the 0.8 GW Topolobampo II CCGT has entered the commissioning phase, with constant withdrawals from the pipeline still to come. Given Transcanada only provides flows from El Encino to Mazatlan, rather than into El Oro (see map below), the step-change can be difficult to monitor. However, there has not been a jump in flows of injections at El Encino either.
Iberdrola also confirmed the 0.9 GW El Carmen CCGT will start operations this year and is most recently confirmed for an August start-up, which will add around 90 mmcf/d of withdrawal demand on the 0.5 bcf/d Nueva Era pipeline. Our balances peg power sector gas demand stepping up by 0.2 bcf/d y/y to 5.2 bcf/d this injection season, followed by an increase to 5.5 bcf/d in the withdrawal season.
|Mexican pipeline infrastructure map|
Note: State of Hidalgo highlighted in orange