Page 4 - LatAmOil Week 27

LatAmOil COMMENTARY LatAmOil
Mexico’s gas woes exacerbated by wrangling over pipeline project
CFE’s push to renegotiate the terms of contracts with foreign investors has delayed the opening of the recently completed Sur de Texas-Tuxpan pipeline
WHAT:
Supply conditions are worsening on Mexico’s internal gas market.
WHY:
Pipelines that might bring more gas into the country are waiting to come on stream, owing to the government’s concerns about excessive deference to corporate interests.
WHAT NEXT:
The disputes may not be resolved in time to prevent widespread gas shortages this summer.
MEXICO’S natural gas market has seen supply conditions deteriorate in recent years, not least because the national oil company (NOC) Pemex has been using a larger portion of its own out- put to support enhanced oil recovery (EOR) programmes.
is shi to gas re-injection has helped the company, as it has given a boost to reservoir pressure levels. It has also been detrimental, though, in that it has reduced the amount of gas available for consumption by residential and business customers.
e part of the country that is feeling the pinch most acutely is the Yucatan Peninsula. States in this region – Campeche, Quintana Roo and Yucatan – can only receive gas via the Mayakan pipeline, which has a design capacity of 7.8mn cubic metres per day. But the volume of gas owing through the link has dropped in recent years, sinking from 3.96 mcm per day on average in 2014 to about 1.5 mcm per day in the rst half of 2019.
Meanwhile, there are also supply problems in other regions. Mexico News Daily, reported last week that the states of Tamaulipas, Nuevo Leon and Coahuila were experiencing shortages, along with Jalisco, Michoacan and Guanajuato.
Remedy in the pipeline?
Mexico might be in a better position to address these problems if it allowed a pipeline backed by Enrique Pena Nieto, the country’s previous president, to begin commercial operations. But the gas transport project, which fell within the framework of Pena’s wider e ort to reform the energy sector, is currently in limbo.
e project in question is Sur de Texas-Tux- pan, an underwater pipeline connecting gas elds in Texas to the Mexican market. e link has a design capacity of more than 73.6 mcm per day. Pemex has said it will be able to direct a larger portion of its own production to the domestic market if it can start receiving extra volumes via the Sur de Texas-Tuzpan pipe.
e $2.5bn conduit is just about ready for use. Canada’s TC Energy Corp and California-based IENova, an a liate of Sempra Energy, nished the 770-km Mexican section of the route in mid- June, about six months behind schedule. So far, though, the partners have not been able to bring
the pipe on line. Mexico’s national power pro- vider CFE has held up the process by declining to acknowledge the completion of construction work.
Disputed contracts
CFE has taken this stance because it wants to renegotiate the terms of the contract signed by TC and IENova.
The deal was negotiated during Pena Nieto’s term in o ce, but the power provider requested mediation under the auspices of the London Court of International Arbitration (LCIA) last month. It explained this move by saying that it considered the Sur de Texas-Tuzpan deal to be unfair because it was too advantageous for the outside investors.
Additionally, it indicated that it was holding talks on compensation for overpayment with other rms involved in pipeline construction projects. Manuel Bartlett, the head of CFE, told reporters last week that his organisation was seeking to recover $899mn from these compa- nies – not just TC and IENova, but also Grupo Carso, owned by the Mexican billionaire Carlos Slim, and Fermaca, another Mexican rm.
Bartlett’s words are in line with previous statements made by Andres Manuel Lopez Obrador, Mexico’s current president.
The part of the “ country that is
feeling the pinch most acutely is the Yucatan Peninsula
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Week 27 10•July•2019