After little over a month of STT operations, volumes have not yet consistently flowed above 0.7 bcf/d. We have downwardly revised our heating season outlook from 6.4 bcf/d to our previous view of 6 bcf/d, and we now peg cooling season 2020 cross-border flows closer to 6.5 bcf/d. The cut is driven by a lack of substitution on sendout from Altamira, a lack of STT deliveries at Monte Grande and the replacement of 0.2–0.3 bcf/d previously delivered through NET Mexico. The degree to which any of these is substituted remains a risk to our reference case forecast.
Last month, the initial stronger-than-expected jump on STT deliveries even as no gas was substituted at Altamira led us to increase our assumption for near-term Mexican pipeline exports, although at the time we noted potential downside risk.
Our reference case had always assumed one cargo would come into Altamira per month to help with system balancing. However, sendout at Altamira is running as usual at 0.3–0.4 bcf/d. The last cargo received, on 11 October, was not publicly tendered by the CFE, indicating that tenders can no longer be relied upon to help estimate Altamira sendout’s level of substitution by STT flows. Despite CFE’s often espoused intention to cease LNG imports, and despite STT now being fully operational, it remains unclear why Altamira is not receiving pipe gas. The 11 October cargo was idle off the terminal for two weeks before unloading, perhaps suggesting some uncertainty as to whether the cargo was needed. We believe there could be connecting issues between STT and SISTRANGAS at Altamira preventing piped gas from substituting some LNG sendout. Our balances now assume that STT flows will substitute 0.1 bcf/d of Altamira LNG this withdrawal season, ramping up to 0.2–0.3 bcf/d in injection season 2020. However, we note that there is significant downside risk to these figures as there is still a chance STT flows into Altamira will be further delayed.
STT’s connection at Monte Grande is yet to receive gas, and we think issues with the reconfiguration at the Cempoala compressor station could be limiting SISTRANGAS’ ability to absorb more gas in the region. The first 0.9 bcf/d phase was marked as complete in SENER’s August pipeline status update, while the second phase, adding 0.35 bcf/d of capacity, was marked for completion in March 2020. However, it has since been reported that CENAGAS has cancelled the engineering contract for the reconfiguration works, so it is unclear whether the first phase of the station is indeed complete. For now, we assume 50 mmcf/d will begin flowing in Q1 20.
Volumes on the 2.1 bcf/d NET Mexico, which previously ran at full capacity pre-STT, now average near 1.8 bcf/d. It initially appeared that the dip was due to an unplanned outage on SISTRANGAS, but even after maintenance ended, NET Mexico flows remained at 1.8 bcf/d, confirming STT replaced volumes formerly going via NET Mexico. We think the flow change is due to SISTRANGAS bottlenecks and assume a 0.3 bcf/d drop in NET Mexico volumes going forward.
Although South Texas flows have been in the spotlight following the start-up of STT, we have noted more gas flowing across other points in Texas. The start of Iberdrola’s 0.87 GW El Carmen CCGT in late September increased flows through Nueva era by 0.1 bcf/d. Trans-Pecos deliveries into TC Energia’s El Encino–Mazatlan are also trending 70 mmcf/d higher m/m due to the recent start-up of Kinder Morgan’s Gulf Coast Express. This extra gas could also be related to Apache’s Alpine High acreage coming back online after being shut in earlier this year. Trans-Pecos deliveries dropped below 0.17 bcf/d from 17 October from 0.26 bcf/d before. We suspect this is due to a temporary unavailability upstream that could be tied to maintenance and that volumes will ramp up to previous levels.
Next in line for Mexican infrastructure start-ups is the Wahalajara system. We expect the first leg of the system, El Encino–La Laguna, to commence operations in Q1 20, flowing 0.1 bcf/d before gradually ramping up to near 0.2 bcf/d in Q3 20. The pipeline will feed two converted fuel oil-to-gas thermal power plants, which at 60% utilisation would consume a combined 76 mmcf/d. Initial planned volumes on El Encino–La Laguna suggest a combined 0.15 bcf/d for both plants, indicating that there is scope for flows to ramp up close to 0.2 bcf/d.
We do not think there is currently any demand tied to the middle leg of Wahalajara, the 1.2 bcf/d La Laguna–Aguascalientes, as proposed CCGTs are not yet being built. Next, we assume the Villa de Reyes–Aguascalientes–Guadalajara (VRAG) will begin flowing in Q3 20, gradually substituting some Manzanillo LNG. VRAG will feed the 1 GW Tierra Mojada CCGT—due to be built by year-end—burning 0.1 bcf/d at 60% utilisation. Our balances assume Wahalajara flows will add 0.2 bcf/d of demand in Q3 20, but the system’s history of delays means significant downside risk remains.
Injection season 2020 will also see a small boost in power sector gas demand as Iberdrola’s 777 MW Topolobampo III CCGT is to end commissioning in June 2020. This will add around 77 mmcf/d of demand at 60% utilisation on the El Encino–Topolobampo pipeline.
As for LNG, we have long highlighted the importance of Mexican LNG imports owing to the lack of storage capacity and need for backup supply for balancing. However, new SISTRANGAS operating balance rules from September could affect the role for LNG. Still, we expect LNG to play a near-term role given deficiencies in the Mexican system (e.g. metering deficiencies, limited SO visibility on operating losses on non-SISTRANGAS systems, a lack of an accurate demand measure in the systems). As our expectations for cross-border flows have been revised lower, we forecast LNG to continue backfilling demand at Altamira and Manzanillo. We now expect LNG imports in the withdrawal and injection season at 0.5 bcf/d, a 0.1–0.2 bcf/d up versus last month.