Delays bloat TransCanada's Mexico pipeline budgets

TransCanada said progress on the construction of three natural gas pipelines in Mexico has suffered delays, elevating the budget above original predictions.

The delays are attributed to various factors, all of which are beyond TransCanada's control, and mirror the state of other pipeline projects in the country, where delays to the completion of some 10 pipelines are threatening to hurt natural gas exports from the US.

The company has revised its expected completion date for the Tuxpan-Tula pipeline to late 2019 due to delays experienced by the energy ministry in its carrying out of consultations of indigenous communities.

TransCanada's subsidiary Transportadora de Gas Natural de la Huasteca was awarded a US$297mn contract to build a 283km pipeline by state utility CFE in November 2015. The original completion date for the project was December 2017.

"Construction of the Tula pipeline was substantially completed in 2017 with the exception of approximately 90km of the pipeline. The delay has been recognized by the CFE as a force majeure event, and we are finalizing amending agreements to formalize the schedule and payment impacts," TransCanada said.

"As a result of the delay and increased costs of land and permitting, estimated project costs have increased by US$0.1bn from the original estimate."

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Construction of the Villa de Reyes pipeline has been delayed due to archeological investigations being carried out by federal authorities along the line's route, which have caused the in-service date of the project to be revised to late 2018, the company said.

This delay has also been recognized as a force majeure event by CFE, which awarded Gas Natural de la Huasteca the contract to build that pipeline in April 2016 after the company submitted a bid at a tender to build the pipeline at a cost of US$337mn.

"We are finalizing amending agreements to formalize the schedule and payment impacts. As a result of the delay and increased costs of land and permitting, estimated project costs have increased by US$0.2bn from the original estimate," TransCanada said.

The completion date for the Sur de Texas-Tuxpan undersea line is also late 2018, in line with the original schedule, with around 60% of the offshore construction completed as of end-2017, the company added.

TransCanada is developing that project in partnership with IEnova, after the two companies' JV Marina del Golfo won the bid to build the line in 2016 with a proposed budget of US$2.16bn, below the CFE's ceiling of US$4.54bn.

Despite the delays, the company trumpeted net income for 4Q17 of Cdn$861mn (US$690mn), compared with a net loss of Cdn$358mn in 4Q16, while net income for the year was a record Cdn$3bn, compared to Cdn$124mn in 2016.