Page 4 - NorthAmOil Week 34

NorthAmOil COMMENTARY NorthAmOil
Mexico moves closer to deal on Sur de Texas-Tuxpan gas pipeline
Billionaire Carlos Slim has reportedly suggested adjustments to the national power provider’s payment plan
US-MEXICO
WHAT:
Mexico has reportedly struck a preliminary deal with four companies involved in multiple pipeline projects.
WHY:
The preliminary agreement could pave the way towards a solution that would help Mexican energy consumers and US shale operators alike.
WHAT NEXT:
The election of another leftist government might give Mexican of cials a reason to push for more changes in terms.
FOR many of the companies producing oil in the Permian and Eagle Ford shale basins, Mex- ico looks like it might be the answer to their prayers.
ese shale operators have been blessed – or perhaps cursed – with an overabundance of gas. ey have more than they need to support re-in- jection programmes, and under the relevant state laws they are usually not allowed to are all of it o . And for a long time, they have not had access to pipelines with su cient capacity to reach paying customers.
Meanwhile, Mexico needs gas. e country is working to expand the use of gas in electricity generation, and demand for energy is rising. As such, it ought to be a prime destination for the extra gas coming out of the ground in Texas and New Mexico – especially since its northern bor- der lies within a few hundred miles of the shale elds.
Roadblocks
is line of argument led Canada’s TC Energy and California-based IENova, an a liate of Sem- pra Energy, to pursue plans for the construction of the Sur de Texas-Tuxpan gas pipeline, with a design capacity of nearly 27bn cubic metres per
year. But CFE, Mexico’s national power provider, threw a wrench into the works.
Earlier this year, it began arguing that the terms of the contract for this pipeline (as well as six others designed to pump gas into and across Mexico) were overly favourable to the foreign investors. It sought arbitration and demanded the right to negotiate new terms and to collect $899mn in overpayments.
CFE’s actions effectively suspended work on the Sur de Texas-Tuxpan link, which was nearly ready to begin commercial operations. TC Energy and IENova nished work on the 770-km Mexican section of the link in June but have not been able to begin shipments, owing to CFE’s refusal to acknowledge the completion of construction.
is move has hurt shale operators, as it has prevented them from using an export outlet with the capacity to handle large amounts of gas. It has also caused problems for Mexico, which does not have enough gas to meet its own needs. It has not only stymied the progress of a project that would have brought much-needed fuel into the country but has also raised questions about the stability of contracts signed with state-owned Mexican companies.
Shale operators in Texas are keen to send excess associated gas output to markets including Mexico.
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Week 34 27•August•2019