Pipeline deal set to ease flow of gas through Mexico

President Andrés Manuel López Obrador announced Tuesday the resolution to an ongoing dispute between Mexico’s federal electricity company CFE and four private sector energy companies over natural gas pipeline contracts, immediately clearing the way for gas to be sent through the South Texas-Tuxpan marine pipeline. 

“Great news,” David Rosales, a midstream and downstream energy analyst at Talanza Energy, a consultancy firm specialized in regulatory compliance in the Mexican energy sector, told BNamericas. 

“It's really important because this will be able to provide gas to petrochemical facilities, which belong to both [federal oil company] Pemex and private companies, gas to the south of Veracruz, plus hundreds of users that had been having problems getting more gas,” Rosales said. 

The 770km South Texas-Tuxpan pipeline, built by Canada’s TC Energy and IEnova, the Mexican arm of California-based Sempra Energy, has the capacity to deliver 2.6Bf3/d into the terminal in Veracruz state. It could boost Mexico’s natural gas capacity by 40%.

But although construction was completed in July – eight months behind schedule – the pipeline has yet to deliver any gas. Meanwhile, amid the dispute between CFE and the energy companies, gas prices have spiked in parts of Mexico, especially in the Yucatán Peninsula.

In his Tuesday morning press conference, López Obrador complimented billionaire Carlos Slim for “setting the precedent” that enabled the renegotiation of the pipeline contracts. Slim's Grupo Carso was the first company to agree new deal terms with CFE and controls one of the seven pipelines at stake.  

Larger implications

“Mexico has an unattended demand that is yet to be measured,” Rosales told BNamericas. With the pipeline impasse largely resolved, he said, “Other projects, such as LNG liquefaction on the Pacific, and new combined cycle plants, can resume planning and development.”

In a press release, IEnova said the deal means an end to an international arbitration process and provides certainty for tariff structures and pipeline contracts. 

“CFE has committed to provide support to resume operations in the Guaymas–El Oro pipeline, as well as the commitment for the immediate start of commercial operations of the Sur de Texas–Tuxpan marine pipeline,” the company said.

The end to the dispute removes one barrier for the other pipelines, but others remain. 

Mexican infrastructure firm Fermaca, which operates two pipelines in central Mexico that converge at Aguascalientes, has yet to reach a deal with CFE. 

In 2017, IEnova stopped work on the Guaymas-El Oro pipeline (331km) in Sonora due to a dispute with members of the Yaqui indigenous community. Similarly, last November, TC Energy stopped work on its Tuxpan-Tula (276km) pipeline, due to opposition from social groups. 

Rosales said “the Yaqui conflict will be closer to a conclusion” because “now that the new administration has embraced these pipelines as theirs, I think they will assist with their huge political capital to solve this issue.”