Despite physical completion and commissioning of the 2.6 bcf/d Sur de Texas-Tuxpan, we remain cautious on what initial volumes will flow on the pipe given that CFE has already tendered for cargoes to arrive at Altamira through end-July. We expect Sur de Texas-Tuxpan to begin a more marked ramp-up by end-July/the start of August. Maximum capacity of the pipe is capped at 1.4 bcf/d due to limited connections downstream, assuming the reversal of flows on the Cempoala compressor station has been completed and is ready to flow gas south. A high probability remains that Cempoala will not be finalised on time due to CENAGAS cancelling engineering contracts last month. Should this be the case, Sur de Texas-Tuxpan’s initial capacity could be capped below 1.4 bcf/d. We peg cross-border flows this injection season to average 0.5 bcf/d higher y/y at 5.2 bcf/d on some ramping up of the Sur de Texas-Tuxpan, a forecast largely unchanged from last month. We peg Mexican LNG takes to be mostly flat y/y at 0.7 bcf/d during the season.
Numerous headlines emerged on 11 June suggesting that the long-awaited 2.6 bcf/d Sur de Texas-Tuxpan pipeline had been completed by project developers TC Energy (formerly TransCanada) and IEnova. These were followed by an announcement on 20 June by IEnova that the system is now undergoing commissioning. Confirmation that the pipeline has finally reached mechanical completion and commissioning—eight months later than initial expectations—is positive. However, we do not expect a notable increase in flows—aside from the current minor flows, including testing and linefill volumes—into Mexico to begin until end-July/start of August based on the unloading date of the last requested cargo (29-30 July) of CFE’s latest tender for cargoes into Altamira.
Concerns remain with regards to the downstream injection capacity the pipeline will initially have, which we currently peg at 1.4 bcf/d, assuming works at the Cempoala compressor station are completed. Sur de Texas-Tuxpan will connect into the Mexican pipeline system at three points: Altamira, Tuxpan and Naranjos. Pipeline flows are expected to substitute LNG imports at Altamira, and we estimate the pipeline will have a maximum injection capacity into SISTRANGAS of roughly 0.9 bcf/d. Gas flowing from South Texas will also be injected into SISTRANGAS at Tuxpan, via a 0.5 bcf/d connection at Monte Grande and into the Cempoala compressor station. It remains unclear whether the reconfiguration of Cempoala is complete and whether the station is ready to begin flowing gas into the poorly supplied southern states of Veracruz and Tabasco amid reports that the engineering contract for the project was cancelled in late May as CENAGAS cited it as overpriced. SENER’s most recent pipeline status update as of 19 June reported that the first phase of the Cempoala reconfiguration is now complete, with 0.9-1.4 bcf/d of capacity operational, while phase 2 is expected to be completed in February 2020 and amount to an additional 0.35-0.85 bcf/d of capacity. This initially suggests Sur de Texas-Tuxpan 0.5 bcf/d injections through Monte Grande should be processed through SISTRANGAS via Cempoala with enough spare capacity. Reports of acute gas shortages in southeastern Mexico remain, however, which brings into question whether the Cempoala station is now operational. Finally, Sur de Texas-Tuxpan will feed into TC Energy’s 0.8 bcf/d Naranjos-El Sauz, although there have been no reports on the progress of the connection and if it will be ready on time for first flows through Sur de Texas-Tuxpan. Overall, we forecast the 2.6 bcf/d Sur de Texas-Tuxpan to have a maximum capacity of 1.4 bcf/d—0.9 bcf/d Altamira and 0.5 bcf/d Monte Grande connections to SISTRANGAS—amid no confirmation of a completed connection with the Naranjos-El Sauz pipeline. Capacity could also fall below 1.4 bcf/d should issues at Cempoala compressor station limit gas flows into the south of Mexico.
While all attention remains laser-focussed on the first flows through Sur de Texas-Tuxpan, there have also been some developments on the Wahalajara system, which we continue to expect will be fully completed in H1 20. Testing continues on parts of El Encino-La Laguna, with intermittent injections from Tarahumara. This month so far, only 40 mmcf/d was injected into El Encino, on 2-5 June, vs the 57 mmcf/d averaged over 14-25 May. Local reports have also emerged indicating Fermaca is undergoing testing and pigging at the La Laguna-Aguascalientes compressor station in Lerdo, where the El Encino-La Laguna pipeline connects to La Laguna-Aguascalientes, indicating some progress on the Wahalajara system.
Having pegged the La Laguna-Aguascalientes and Villa de Reyes-Aguascalientes-Guadalajara pipelines for May 2019 completion since the start of the year, CFE’s June pipeline report finally admitted that this date had been missed. In its 19 June report, CFE said La Laguna-Aguascalientes would be complete in July and Villa de Reyes-Aguascalientes-Guadalajara in November 2019, though we think that H1 20 is a much more realistic expectation. Still, CFE's admission of delays to the pipe completions does support our view that full completion of the Wahalajara system is likely to be later rather than sooner, with risks for further delays still high.
Lastly, and just in time to meet peak cooling demand, Iberdrola’s 0.9 GW El Carmen CCGT will soon start its testing phase before commercial operations on 1 August. The El Carmen CCGT connects to the 0.5 bcf/d Nueva Era pipeline and at 60% utilisation rate would consume around 90 mmcf/d. It would be the third CCGT to come online in Mexico this year out of four, with the 0.9 GW Norte III CCGT, which will feed from the 1.2 bcf/d San Isidro-Samalayuca, expected to come online in November.
For this summer and mostly unchanged from last month, our balances peg cross-border flows at 5.2 bcf/d (+0.5 bcf/d y/y) before quickening to 5.8 bcf/d (+1.0 bcf/d y/y) in the upcoming withdrawal season as Sur de Texas-Tuxpan ramps up. We expect LNG imports to continue backfilling demand, with cargoes into Altamira scheduled for end-July and tenders into Manzanillo requesting cargoes until year-end. As such, LNG imports this injection season will be mostly flat y/y at 0.7 bcf/d before slowing down to 0.3 bcf/d in the withdrawal season.
|Mexican pipeline infrastructure map|
|Source: Company websites, CENAGAS, Energy Aspects|