Mexico pipeline delays risk hurting US natgas exports

Tuesday, November 14, 2017

Construction delays threaten the start of operations of new natural gas pipelines in Mexico, which would limit US imports until late 2018 and could potentially be bad news for the Permian basin's growth that needs a Mexico outlet by 2019, according to a speaker at an energy conference in Mexico City on Monday.

Mexico also relies heavily on US gas imports as it continues to see a natural gas production decline, which is expected to be 0.8Bf3/d by 2022, while total gas demand is projected to climb to 5Bf3/d by that year, particularly as the country converts to gas-fired power generation, according to Ross Wyeno, a senior analyst at S&P Global Platts.

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Delays have been common on pipeline construction projects in the country. Most recently, US firm Impulsora Pipeline requested more time in March from the Federal Energy Regulatory Commission (FERC) to complete the Nueva Era natural gas pipeline from Webb County, Texas to Colombia in Mexico's Nuevo León state.

Impulsora asked the FERC to extend the time for putting the 36-inch diameter pipeline into service until the end of the year after having encountered unexpected construction delays on the Mexican side of the border.

Mexico's natural gas imports from the US are on the rise, and pipeline construction needs to serve the increasing volumes. In August, Mexico imported 135Bf3 of the fuel, according to the US Energy Information Administration (EIA), and increased gas imports from the US are expected to meet the rise in Mexico's demand, Wyeno said.

Mexico has been engaged in a US$10bn natural gas pipeline expansion plan since 2015 which includes an increase in interconnection with the US. In June, the US Federal Energy Regulatory Commission (FERC) issued a presidential permit approving the construction of a 270km undersea natural gas pipeline between Texas and Mexico, to be built by Spectra Energy affiliate Valley Crossing Pipeline.

Natural gas-fired power generation capacity is growing rapidly, and demand for the fuel for electricity generation will rise by 30% over the coming decade, which is unlikely to be moderated significantly by parallel growth in renewable energy capacity, Wyeno said.

"A strong build-out in renewables generation is the downside to gas-fired capacity growth, but that is still a 'wait-and-see' scenario, as we see how the projects awarded in recent auctions pan out," he added.

Mexico's gas-fired power capacity is expected to reach 20GW by 2022, and electricity generation from gas will likely hit 20TWh/m that year, he added.