Mexico could see its natural gas infrastructure expand as imports from the U.S. ramp up following an agreement to end pipeline contract disputes, Fitch Ratings' research arm, Fitch Solutions, said in a recent report.
Government and state-owned utility Comisión Federal de Electricidad, or CFE, at the end of August announced the deal to renegotiate the contract terms that will decrease the fees Mexico pays for shipping gas on pipelines owned by TC Energy Corp. and Sempra Energy unit Infraestructura Energetica Nova SAB de CV, or IEnova. TC Energy completed construction and commissioning activities in June for the 482-mile Sur de Texas pipeline, which has the capacity to provide up to 2.6 Bcf/d of natural gas supply to Mexico directly from the U.S., but it is not yet online for commercial service.
Once gas begins to flow through that pipeline, Mexico would benefit from additional storage facilities, particularly in the southern and eastern regions, according to Fitch Solutions.
"The vulnerability of the power and natural gas networks is especially critical in Yucatán, which has experienced multiple power outages in the last 12 months due to insufficient gas supply," Fitch Solutions wrote in a Sept. 26 note to clients. "As of now, Mexico has no underground natural gas storage, [but] instead relies on storage capacity at its three LNG import terminals as a primary means of balancing the country's supplies."
Fitch Solutions added that Mexico's gas control operator, Cenagas, has identified potential sites to provide 10 Bcf of storage capacity by 2021 and 30 Bcf by 2024.
Sur de Texas and TC Energy's two other Mexico pipeline projects — the 155-mile Tula pipeline that will serve the country's West and Central regions, and the 261-mile Villa de Reyes that will move gas to power generation facilities in Central Mexico — will also help Sempra sanction its Energía Costa Azul project on Mexico's West Coast, Fitch said. The company aims to make a final investment decision later in 2019 to convert the Baja California, Mexico, LNG import terminal to an export facility with a capacity of about 2.4 mtpa after striking nonbinding agreements that could cover the entire export capacity of Energía Costa Azul's first phase.
Still, contractual issues and local opposition could threaten further development of Mexico's gas infrastructure.
"We think that the recent disputes with gas pipeline [operators] pose significant risks to investor sentiment as it set a precedent allowing the government to renegotiate contracts in the future," Fitch wrote. "Additionally, natural gas infrastructure projects in Mexico face ... sustained opposition from local communities in various parts of the country. Protests hinder the timely completion of projects, translating into higher [project] costs."
