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JV Secures $2.1B Mexico Pipeline Deal

Thursday, June 16, 2016

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The North American energy company most often associated with the Keystone XL oil pipeline, recently rejected by the U.S. government, has announced plans to build, own and operate a $2.1 billion natural gas pipeline south of the U.S. border.

TransCanada Corporation, headquartered in Calgary, Alberta, will partner in a joint venture with IEnova, a subsidiary of Sempra Energy Company, to construct the Sur de Texas-Tuxpan Natural Gas Pipeline in Mexico.

gas pipeline inventory
© iStock.com / epixx

Operating as a joint venture, TransCanada Corporation and Sempra Energy subsidiary IEnova have been chosen to build, own and operate the $2.1 billion Sur de Texas-Tuxpan natural gas pipeline in Mexico.

The project will be supported by a 25-year natural gas transportation service contract for 2.6 billion cubic feet a day with the Comisión Federal de Electricidad (CFE), Mexico's state-owned power company, the company said in a statement Monday (June 13).

"We are extremely pleased to further our growth plans in Mexico with one of the most important natural gas infrastructure projects for that country's future," said Russ Girling, TransCanada's president and chief executive officer.

"This new project brings our footprint of existing assets and projects in development in Mexico to more than $5 billion, all underpinned by 25-year agreements with Mexico's state power company."

Sole Bidder

Operating under the name Infraestructura Marina del Golfo (IMG), the partnership will be a 60-40 split between TransCanada and Mexico City-based IEnova. TransCanada plans to invest $1.3 billion in the project.

The winning bid of $2.1 billion came in well below the maximum bid, which CFE capped at $3.1 billion, the Wall Street Journal reported.

According to the Financial Times, CFE had originally projected costs of $4.53 billion for the project, but the figure dropped after it secured a transport tariff of $0.2494 per gigajoule, which it calls “among the most competitive in the world.”

IMG was the sole bidder for the project. The only other participant in the process, Ducto Mar Gas, was rejected because its lack of offshore experience didn’t meet the technical requirements, as well as for being unable to supply adequate financial guarantees.

Pipeline Details

The new U.S.-to-Mexico natural gas pipeline will be composed of 497 miles of 42-inch-diameter pipe supplying North American shale gas to CFE’s power plants.

gas pipeline construction
© iStock.com / ewg3D

TransCanada expects to invest approximately $1.3 billion in the partnership to construct the 42-inch diameter, approximately 497-mile pipeline (not shown) and targets an in-service date of late 2018.

“The South Texas-Tuxpan gas pipeline will contribute to CFE’s strategy of replacing expensive and polluting fuels such as fuel oil and diesel in generating electricity,” a representative from the electrical utility told the Journal.

The subsea portion of the line is slated to begin offshore in the Gulf of Mexico, near the border at Brownsville, TX, and travel to Tuxpan in the Mexican state of Veracruz.

The pipeline should be operational in 2018.

The Mexican Market

TransCanada currently has three pipelines operating in Mexico. Within the past eight months, it was awarded the $500 million Tuxpan-Tula and the $550 million Tula-Villa de Reyes pipelines, which are already under construction with a 2018 service date deadline, Reuters reported.

The addition of the Sur de Texas-Tuxpan pipeline brings TransCanada’s total pipelines in Mexico to eight, the Journal noted.

The new line will connect to CENAGAS's pipeline system in Altamira, will interconnect with TransCanada's Tamazunchale and Tuxpan-Tula pipelines as well as with other transporters in the region, it said.

One such connection will be with Spectra Energy’s new $1.5 billion Nueces-to-Brownsville Pipeline. CFE awarded this 168-mile intrastate natural gas pipeline project to Spectra subsidiary Valley Crossing Pipeline LLC on Monday (June 13) as well, Spectra announced.

Valley Crossing will construct and operate a header system of more than 5 billion cubic feet per day (Bcf/d) near the Agua Dulce Hub in Nueces County, TX, as well as a 2.6 Bcf/d pipeline originating at that header and extending to Brownsville, TX, the company said.

There, the pipeline will connect with the Sur de Texas-Tuxpan pipeline, which will extend into Mexico. Service is slated to begin in 2018 for this line as well.

   

Tagged categories: Industry News; Latin America; North America; Oil and Gas; Pipelines; Program/Project Management; Utilities

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