Mexico Advances Plans for $8B Expansion of Gas Pipeline Network

MEXICO CITY – Mexico may someday realize its potential as a natural gas superpower, but in the lengthy meantime the country’s gnawing energy craving may feed off Texas pipelines.

Mexico energy planners are pressing ahead with an $8 billion expansion of the country’s 5,500-mile natural gas pipeline system, focusing on central and northern industrial cities. And for the foreseeable future, they intend to fuel that network with U.S. natural gas, including from South Texas and Eagle Ford Shale fields.

“Mexico has a unique opportunity, we have access to the world’s cheapest gas,” Mexican Energy Minister Jordy Herrera said of the U.S. supply in announcing the new pipeline plans earlier this year. “This is competitiveness for the industry of our country.”

Already, Kinder Morgan and other Houston-based pipeline and gas companies are lining up to be of profitable assistance.

“Kinder Morgan continually looks for ways to optimize its existing pipeline system and expand deliverability,” the company said in a statement Friday. “In Mexico, there is a growing need for additional supplies.”

Consumption soaring

Incoming President Enrique Peña Nieto‘s economic team vows to push for the rapid development of northern Mexico’s shale gas fields – said to hold the world’s fourth-largest reserves of the unconventional fuel – with the help of U.S. and other foreign investors. But those plans hinge on far-from-certain constitutional changes debated by the new Congress that begins Sept. 1.

In the meantime, Mexico’s natural gas consumption continues climbing – at times in the past decade at four times the pace of overall economic growth. New supplies of gas have to be found and more pipeline laid to carry them to consumers.

Herrera and other officials say taking advantage of that supply – most of which will come from Texas – first will mean a dramatic build-out of the country’s pipeline grid, which under-supplies many of the fastest growing industrial cities of the heartland of Mexico.

“This network is clearly and notoriously insufficient,” Herrera said.

Mexican officials will award contracts to U.S. and Mexican companies in October for construction of $3 billion worth of new pipelines from just below the Rio Grande deep into industrialized central Mexico and still more in Mexico’s northwest.

Kinder Morgan already has proposed building an extension from its pipelines near Tucson to the Arizona border town of Sasabe, which will connect to Mexico’s planned 600-mile duct running to the Pacific port of Mazatlan.

The company said the pipeline would initially export 160 million cubic feet of gas a day to Mexico.

The U.S. side of the project awaits regulatory approval.

Mexican officials announced this month that the government’s petroleum monopoly – Petroleos Mexicanos, or Pemex - will use a Cayman Islands subsidiary to help finance that pipeline as well as another connecting the Agua Dulce gas hub near Corpus Christi to Mexico’s pipeline system on the border outside McAllen.

700-mile pipeline

The Agua Dulce duct will feed South Texas gas to the planned Los Ramones pipeline, which will run some 700 miles from the border near McAllen through Monterrey and on to Aguascalientes state, supplying Mexico’s rapidly developing automotive manufacturing heartland.

Kinder Morgan currently supplies Texas gas to Pemex through a cross-border pipeline in Starr County, which goes to a power plant in Monterrey and connects to Mexico’s national gas pipeline system.

U.S. gas exports via pipeline to Mexico have tripled in a decade, to some 500 billion cubic feet last year, according to the U.S. Energy Department. Further increasing that supply will depend upon market conditions on both sides of the border.

Some argue that with natural gas prices as much as four times higher in Asia and Europe, selling it to Mexico at near historic bottom U.S. prices might not make sense.

“Pipelines are expensive,” said Bill Gwozd, vice president of gas services at Ziff Energy, a consulting firm with offices in Houston and Calgary. “Why not throw that money into a liquefied-gas facility and get $12 for your gas?”

“Spending money is easy,” Gwozd said. “Doing it properly takes due diligence.”

http://www.chron.com/news/houston-texas/article/Multibillion-dollar-pipeline-expansion-in-Mexico-3799810.php