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Natural Gas

Lopez Obrador willing to go to court to renegotiate gas transportation contracts signed by CFE

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Lopez Obrador willing to go to court to renegotiate gas transportation contracts signed by CFE

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Long-term viability of CFE seen as difficult

Social opposition delaying seven pipelines

Tula, Mexico — Mexican President Andres Manuel Lopez Obrador said Monday he is willing to take natural gas pipeline companies to court if negotiations fail to modify transport contracts with state power utility CFE.

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"We will seek by one side to renegotiate these contracts that are damaging," Lopez Obrador said during a webcast press conference. "[We will do this] following the rule of law. But we are also willing to go to all the tribunals required no matter how lengthy the process might be. We can't maintain unfavorable contracts that goes against national interests.

Lopez Obrador said he was personally, along with CFE Director Manuel Bartlett, reviewing pipeline contracts.

Mexico is not going to make any arbitrary or illegal decisions, Lopez Obrador said. However, there is too much money tied to these pipeline transportation contracts, which will make CFE's long-term viability difficult.

The government supports completing these pipelines to avoid CFE from having to continue making capacity payments without receiving any gas, he added.

There are seven CFE-sponsored pipelines delayed or halted due to social opposition. Meanwhile, CFE is making capacity payments for these unfinished pipelines.

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Pipeline delays have occurred across much of Mexico, with two critical systems delayed in Central Mexico: TransCanada's indefinitely halted 886 MMcf/d Tuxpan-Tula and Tula-Villa de Reyes projects, providing the most uncertainty to pipeline flows and end-users in population-dense areas.

IEnova's 510 MMcf/d Guaymas-El Oro pipeline in Northwest was completed and started flows in mid-2017, to a peak of 77 MMcf/d. But it shut in after it was damaged by the Yaqui indigenous group. IEnova is currently working on bypassing the original project path while continuing to work with local communities.

Carso Energy's 472 MMcf/d Samalayuca-Sasabe pipeline in northern Mexico has faced opposition and the company is reportedly pursing imminent domain. An Energy Secretariat pipeline status report shows an in-service date for August. The report also indicates the Fermaca's 1,189 MMcf/d La Laguna-Aguascalients and 886 MMcf/d Villa de Reyes-Aguascalientes-Guadalajara systems are facing social opposition but may be in service as soon as May 2019.

US exports to Mexico have averaged 5.0 Bcf/d this year to date but are forecast to grow to a monthly average peak of 6.4 Bcf/d in July - mainly driven by the 2.6 Bcf/d Sur de Texas-Tuxpan pipeline.

Numerous interconnect projects that were proposed after the original 2013-14 Energy Reform will help alleviate constraints in Central and Southern Mexico through 2019 and 2020.

The owners of these seven pipelines, TransCanada, Fermaca, Carso Energy and IEnova did not return comment requests from Platts on Monday.

-- Daniel Rodriguez, daniel.rodriguez@spglobal.com

-- John Hilfiker, jhilfiker@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com