Delays continue to plague the start-up of key Mexican pipeline infrastructure and we now assume an end-July/early August start for the 2.6 bcf/d Sur de Texas-Tuxpan pipeline, which would be a month later than its expected in-service date. While there has been no official confirmation of this delay, a CFE tender for seven more LNG cargoes to be delivered into Altamira by end-July suggests LNG is still necessary to backfill demand in the absence of new pipeline flows. We forecast Mexican imports of US pipeline gas this injection season will average 5.2 bcf/d, which is 0.5 bcf/d higher y/y and slightly over the current average of 4.9-5.0 bcf/d. We peg LNG imports at 0.7 bcf/d during the injection season (-0.1 bcf/d y/y) with considerable upside risk as further delays to Sur de Texas-Tuxpan cannot be ruled out.
On expectations that Sur de Texas-Tuxpan and Wahalajara would have begun flowing gas by now, CFE announced in late August 2018 its intention to stop tendering for LNG in 2019. We noted at the time that this was highly ambitious to say the least and our cautious view has been proven right. Issues ranging from social unrest, permitting issues and technical problems have delayed Mexico’s pipeline infrastructure expansion and maintained its dependence on LNG to meet demand (year-to-date LNG imports are flat y/y at 0.6 bcf/d).
On 16 May, CFE announced its fifth tender for Altamira this year, requesting seven cargoes for May-July delivery. The tender means Altamira LNG receipts will be flat y/y over May-July and suggests a further delay to Sur de Texas-Tuxpan, due to the absence of pipe flows to meet demand (see E-mail alert: Sur de Texas-Tuxpan start-up at high risk of delay beyond June, 16 May 2019). The reason for the potential delay remains unclear as there have not been any recent project status updates, although the pipe has already faced a myriad of hold ups. Based on the unloading date of the last requested cargo (29-30 July), Altamira stocks will likely last until the first week of August. Any additional tenders announced for Altamira delivery would be indicative of yet another delay to first flows on Sur de Texas-Tuxpan. Our balances currently assume the pipe will start up by end-July or in early August, but there is clearly a high risk of further delays.
A variety of issues are also affecting completion of the Wahalajara pipeline system, which would provide a much-needed outlet for Waha gas. The project was most recently expected to become operational in May, as indicated by SENER’s May pipeline status report, but, in line with our long-maintained conservative view on infrastructure progress, our balances assume first Wahalajara flows in H1 20. Supporting our cautious view, reports emerged this month that a section of the 1.2 bcf/d La Laguna-Aguascalientes has restarted works following a month-long halt as a fresh agreement was reached between ejidos and project developer Fermaca, while works at El Encino-La Laguna’s lateral pipeline Dinamita, in Durango state, remain blocked one year on (see E-mail alert: Full completion of Wahalajara system this injection season highly unlikely, 20 May 2019). This news added to the wave of protests against project developer Fermaca that took place earlier this year (see E-mail alert: Further delays to Wahalajara system highly likely, 19 March 2019) as well as reports that parts of the 0.9 bcf/d Villa de Reyes-Aguascalientes-Guadalajara and 1.2 bcf/d La Laguna-Aguascalientes are still missing necessary permits (see E-mail alert: Permitting delays to Mexican pipe may support LNG takes, 16 April 2019). Project developer Fermaca has not provided a formal update on the status of the project, but a full start-up of the system before year-end seems highly unlikely.
In the meantime, Wahalajara’s first section, El Encino-La Laguna, has been regularly taking gas from the 0.9 bcf/d Tarahumara pipeline as it begins testing, but the lack of completed connections downstream is likely to mute any potential increase in demand. Additionally, we also believe that only the first phase of El Encino-La Laguna, which runs to Delicias and feeds a nearby converted fuel oil-to-gas thermal power plant, is likely to be finished. Flows from Tarahumara into El Encino-La Laguna averaged 57 mmcf/d from 14 May to 25 May, in line with the 75 mmcf/d that 316 MW Francisco Villa thermal plant would consume.
Based on an end-July/early August Sur de Texas-Tuxpan start-up, we peg cross-border flows from the US to Mexico at 5.2 bcf/d (+0.5 bcf/d y/y) this injection season, with Mexico’s LNG imports slowing slightly, by 0.1 bcf/d y/y to 0.7 bcf/d, as LNG takes at Altamira begin to be supplanted by pipeline flows. From August onwards, and assuming a ramp up on Sur de Texas-Tuxpan, we expect Altamira to still receive some minimal cargoes as pipeline flows gradually increase and as redundancy for reliability concerns given the lack of Mexican storage. Once Sur de Texas-Tuxpan is up and running, we expect Altamira will receive one cargo a quarter for security of supply, as Mexico lacks underground storage. Additional setbacks to the Sur de Texas-Tuxpan provide a downside risk to this forecast. If first flows do not take place this injection season, pipeline imports and LNG imports would both come in flat y/y over the period at 5 bcf/d and 0.8 bcf/d respectively. As for the upcoming heating season, we peg cross-border flows to average 5.7 bcf/d with LNG takes slowing by 0.2 bcf/d to 0.3 bcf/d again assuming Sur de Texas-Tuxpan flows begin in late July or early August and ramp-up thereafter.
|Mexican pipeline infrastructure map|
|Source: Company websites, CENAGAS, Energy Aspects|