Our balances currently account for an end-June start-up of the 2.6 bcf/d Sur de Texas-Tuxpan pipeline, although risks of a delay remain high on reports of growing social unrest and permitting issues. We also do not expect a Wahalajara completion this year, meaning no incremental price support for the Waha hub this summer. We peg Mexican pipeline imports of US gas at an average 5.2 bcf/d (+0.5 bcf/d) this injection season, although we highlight risks on that level of import. Should first flows on Sur de Texas-Tuxpan not materialise this injection season, imports would average 5.0 bcf/d—a more modest 0.3 bcf/d y/y increase than the 0.5 bcf/d gain we expect—and add 50 bcf to our US end-October storage forecast. Our base case scenario assumes flows through Sur de Texas-Tuxpan will begin this injection season and Altamira LNG takes will be curtailed to 0.2 bcf/d, a 0.14 bcf/d y/y drop, as we assume some system redundancy is still necessary.
Our long-held cautious outlook on cross-border flows growth was justified earlier this month when CFE officials announced the start-up on the much-awaited Sur de Texas-Tuxpan was pushed back once again to end-June—a year later than its initial completion date. The announcement came when some sources were pointing to an imminent start-up of the system. Our balances account for a slow ramp on the pipe beginning end-June/July, although such a start date still remains at high risk of further delays. Full completion of the Wahalajara pipeline system this injection season remains highly unlikely, if it happens this year at all, and CFE’s April LNG tender for 17 cargoes to Manzanillo for May-December seems to confirm our view. The observed start of small flows into El Encino-La Laguna from the Tarahumara pipeline could be to feed a converted fuel oil-to-gas thermal power plant, rather than a sign of any downstream Wahalajara commissioning taking place.
Technical problems, social unrest, permitting issues—what is it going to be?
On 11 April, CFE officials confirmed Sur de Texas-Tuxpan was delayed until June from a previous April start-up, citing welding problems and an inspection of a section of pipe after it was shutdown for 15 days by local fishermen as the main causes (see E-mail alert: Sur de Texas-Tuxpan delayed until late June, confirming timing risks, 11 April 2019). Fishing communities in Tamiahua, Veracruz have held protests for over a month since mid-March due to concerns that construction works related to the pipeline are disturbing marine life and fishing productivity. Protesters also claimed that promised social projects and cleaning of contaminated zones have yet to take place.
When addressing protesters, local news outlets have reported that Tamiahua’s mayor has stated that TransCanada, Sur de Texas-Tuxpan’s developer, allegedly holds ‘fake’ or invalid permits for the project. The mayor also mentioned that attempts by the municipality’s administration to address the situation with TransCanada have so far been ignored by the company.
While CFE’s 11 April announcement did not mention permitting issues among the reasons for the setback, further reports have emerged pointing to Sur de Texas-Tuxpan pipe’s permits being delayed (see E-mail alert: Permitting delays to Mexico’s Sur de Texas-Tuxpan may support LNG takes and limit US pipe imports, 16 April 2019). Mexico’s environmental agency SEMARNAT is said to have not yet granted concessions for the use of land and maritime zones. Additionally, the Secretariat of Communications and Transportation (SCT) has not issued permits to allow the building of necessary docks and piers in Rio Tamiahua, north of Altamira in Veracruz. As we have mentioned, the exact impact of missing permits on the latest end-June deadline remains unclear, as does how quickly such permits could be awarded by government agencies. However, these developments add additional potential hurdles to be overcome before start-up.
In the meantime, Altamira just received its last cargo on 21 April, and CFE announced a new tender on 26 April for five cargoes for May to June. Considering peak cooling season send-out at Altamira usually trends at 0.4-0.5 bcf/d, stocks would only last for 10 days after the last cargo unloads in June. As LNG takes at Altamira are needed to balance demand until Sur de Texas-Tuxpan starts injecting gas into the Mexican system, the number of cargoes and their delivery dates specified by any new tender could reflect expectations of Sur de Texas-Tuxpan’s likely start-up. Currently, such a tender would align with the stated end-June in-service date, but we continue to monitor for additional tenders into the facility.
Don’t fall for it Waha…
SENER’s monthly infrastructure update continues to report the last two sections of the Wahalajara system—1.2 bcf/d La Laguna-Aguascalientes and 0.9 bcf/d Villa de Reyes-Aguascalientes-Guadalajara pipes—for a May start-up, despite protests against the project and permitting issues affecting construction works. SENER’s report also marks the first section of the Wahalajara—1.5 bcf/d El Encino-La Laguna—as operational since March 2018, but evidence suggests otherwise. While we have monitored first gas flows from Tarahumara into El Encino-La Laguna on 18–22 April (30-45 mmcf/d), there has been no posting of follow-through flows on El Encino-La Laguna’s electronic bullet board. Instead, those flows could be going through the first phase of El Encino-La Laguna to feed the fuel oil-to-gas-converted 316 MW Francisco Villa thermal power plant in Delicias, Chihuahua state, which at a 60% utilisation rate would burn around 40 mmcf/d of gas.
The full completion status of El Encino-La Laguna remains unclear. We have maintained since mid-2018 that, while the first section of the El Encino-La Laguna could be completed (from El Encino to Delicias), the pipe’s second phase (Delicias to Lerdo) may not be finalised yet. We think construction works on the second phase have been halted since June 2018 because the project is set to cross the Sierra del Sarnoso mountain range, a protected natural area. Latest local reports seem to indicate works in the disputed area have not been finalised and legal procedures are still awaiting a resolution.
From early February to end-March, protests took place in Durango as groups pushing the interests of rural communities claimed that project developer, Fermaca, had underpaid farmers for land and used pressure and threats against opponents of the project. The 0.9 bcf/d Villa de Reyes-Aguascalientes-Guadalajara pipe is said to be missing local construction and land permits in the municipalities of Villa de Reyes (San Luis Potosi), Lagos de Moreno (Jalisco) and Llano (Aguascalientes). Similarly, the 1.2 bcf/d La Laguna-Aguascalientes has not yet secured all the permits needed for land purchases along the full length of the pipe’s route from the Mexican Secretariat of Agrarian, Land and Urban Development (SEDATU). Such developments lead us to assume an early 2020 start-up date for these downstream sections of the Wahalajara system.
CFE’s 24 April tender seeking for 17 cargoes for Manzanillo from May to December can also be viewed as indicative that CFE does not expect piped gas from Waha to reach Guadalajara this year. The Wahalajara system is ultimately intended to replace LNG imports at Manzanillo, as gas can flow from Waha to Guadalajara and into Manzanillo via the reversal of flows through a change to compressor stations on TransCanada’s Manzanillo-Guadalajara pipeline. Manzanillo received a total of 26 cargoes during the same period last year, of which around 23 cargoes were assigned through public tenders, some of which were tendered just a month prior to delivery. The 24 April tender suggests that CFE does not foresee Wahalajara in full operation this year, and it is likely the first of a few more tenders to come this year for Manzanillo.
We forecast cross-border flows this injection season to average 5.2 bcf/d, in line with a late June/early July start-up of Texas Tuxpan. However, further setbacks on Sur de Texas-Tuxpan would result in flows in line with current volumes near 5.0 bcf/d. LNG imports, which are still necessary to backfill demand given the system has little excess gas to spare, lack of domestic storage and bottlenecks in pipeline infrastructure, are pegged at 0.5 bcf/d (-0.3 bcf/d y/y). Should Sur de Texas-Tuxpan timing risks materialise, LNG imports this injection season would be near flat y/y at 0.7 bcf/d. In the upcoming withdrawal season, cross-border flows will climb 0.9 bcf/d y/y to 5.7 bcf/d solely on Sur de Texas-Tuxpan growth, while LNG imports will decline by 0.2 bcf/d to 0.4 bcf/d. Again, that winter estimate is highly sensitive to timing risk. We expect Manzanillo will still be importing cargoes, while Altamira will receive a cargo a quarter in order to maintain some stocks.
|Mexican pipeline infrastructure map|
|Source: Company websites, CENAGAS, Energy Aspects|