Owing to a quicker-than-expected ramp-up of Sur de Texas-Tuxpan (STT), we now peg withdrawal season cross-border flows at 6.4 bcf/d, a 0.3 bcf/d upwards revision from last month. Recent Valley Crossing and STT flows peg deliveries at a hefty 0.5-0.6 bcf/d. That same rate of flows was reported on the Naranjos-El Sauz pipeline, indicating that STT is now delivering gas into Naranjos-El Sauz. We believe flows on STT next month could climb to 1 bcf/d as the pipe begins substituting sendout from Altamira and delivering some gas into Monte Grande. We continue to expect some cargoes to be tendered into Altamira due to the lack of storage in Mexico and the continuing need for supply to balance the pipeline system.
For most of September, STT receipts were intermittent and did not exceed 0.1 bcf/d, consistent with linepack filling and testing. However, gas was not reported as having exited STT. From 17 September, when TC Energia officially announced that STT was online, Valley Crossing and STT flows and nominations jumped to 0.4-0.6 bcf/d. STT deliveries were also reported for the very first time, indicating the pipe had begun to transport gas into Mexico. The recent big jump in flows suggests that STT could ramp up quicker than previously expected.
STT has three delivery points into the Mexican pipeline system: a 0.5 bcf/d SISTRANGAS connection at Monte Grande, a connection at Altamira—which we estimate to have 0.9 bcf/d capacity as it is intended to substitute sendout from the LNG terminal—and a connection to the 0.6 bcf/d Naranjos-El Sauz pipe. Over 17-23 September, no flows were reported into SISTRANGAS at Monte Grande while sendout from Altamira has remained steady at 0.4 bcf/d.
Flows on Valley Crossing, then into STT and then into Naranjos-El Sauz have matched closely since 17 September, indicating STT is delivering its gas directly to Naranjos-El Sauz. This is despite no confirmation from TC Energia, the operator of both the STT and Naranjos-El Sauz pipelines, that the connection has been completed. We believe SISTRANGAS volumes previously injected into Naranjos-El Sauz are now likely being redirected to meet demand south of the system. As such, we peg current cross-border flows to be trending close to 6 bcf/d, 0.6 bcf/d higher than the 5.4 bcf/d averaged since July.
Flows in October are likely to trend at 6 bcf/d with an upside to 6.4 bcf/d, as STT flows begin to substitute Altamira sendout and deliveries take place at Monte Grande. Altamira last received a cargo on 17 September and is due to receive its last tendered cargo on 25 September, with stocks likely to last through the first two weeks of October. Concerns remain around bottlenecking in the SISTRANGAS system if the Cempoala compressor station is not yet functional (see Monthly: Mexico - Suspense…,26 August 2019), which could limit STT deliveries at Monte Grande. As we believe previous SISTRANGAS volumes destined for Naranjos-El Sauz are now being directed southwards, the bottleneck could be exacerbated should Cempoala not be fully operational.
We forecast cross-border flows to average 6.4 bcf/d this withdrawal season, 0.4 bcf/d higher than last month’s forecast, assuming STT flows into Naranjos remain at the current level, sendout at Altamira is mostly substituted and some flows begin at Monte Grande. Additionally, some marginal flows on Wahalajara’s El Encino-La Laguna and La Laguna-Aguascalientes are also factored into our balances from the beginning of 2020, but do not exceed 0.1 bcf/d due a lack of downstream demand.
Is Wahalajara next?
Developer Fermaca was the last of the project developers to reach a successful deal on the arbitration case between the Mexican government and pipeline developers on contract terms for new pipelines on 11 September. Days later, Fermaca’s president announced the 1.2 bcf/d La Laguna-Aguascalientes was to commence operations on 13 September followed by the last leg of the system, the 0.9 bcf/d Villa de Reyes-Aguascalientes-Guadalajara (VRAG), in March 2020. Since 13 September, the lack of flow data confirms there is still no gas flowing from El Encino into Aguascalientes. However, Fermaca’s comments hint that both El Encino-La Laguna and La Laguna-Aguascalientes are likely to be mechanically complete or very close to completion.
While last month we did not expect flows on Wahalajara any time before H2 20, our balances now account for some flows from El Encino to Aguascalientes to begin at the start of next year. We also peg the last leg of the system, VRAG, to enter operations in early H2 20. But it will not be until VRAG begins flowing and substitutes sendout from Manzanillo that we are likely to see significant flows on the system owing to a lack of downstream demand connections.
It is likely that El Encino-La Laguna will not flow more than 0.1 bcf/d as it is only to feed two converted fuel oil-to-gas thermal plants and meet small-scale industrial demand along its route. La Laguna-Aguascalientes will feed gas to VRAG once online, but we believe the pipeline does not have any other delivery points along its route. For instance, the planned Aguascalientes I CCGT, which was to be online this year and receive gas from La Laguna-Aguascalientes, has not yet been constructed.
For the upcoming injection season and once VRAG enters operations in early H2 20, we forecast cross-border flows to quicken towards 6.9 bcf/d. This assumes the Wahalajara system substitutes sendout from Manzanillo once VRAG begins flowing gas in early H2 20. We continue to expect Mexico to tender for a few cargoes into Altamira and Manzanillo after STT and Wahalajara substitute sendout from LNG terminals, owing to the continuing need for back-up supply to balance the system. As such, we peg LNG imports at 0.4 bcf/d (-0.1 bcf/d y/y) this withdrawal season and at 0.5 bcf/d (-0.3 bcf/d y/y) in injection season 2020.
|Mexican pipeline infrastructure map|
|Source: Company websites, CENAGAS, Energy Aspects|