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Kinder Morgan wins nod on crossborder gas pipeline expansion to Mexico

Highlights

Adds 322 MMcf/d of cross-border capacity from El Paso mainline

Expected to feed growing demand in Northwest Mexico

Denver — Federal regulators on Tuesday gave Kinder Morgan a green light to begin construction on its Sierrita Compressor Expansion, a project that could spur new demand for Permian gas in Northwest Mexico.

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The project will expand the existing 61-mile, 36-inch-diameter Sierrita Gas Pipeline, which currently offers about 200 MMcf/d in firm transportation capacity from the El Paso Natural Gas south mainline in Tucson, Arizona, to the US border with Northwest Mexico at Sasabe.

Following an open season, which closed in October 2015, Mexico's Comision Federal de Electricidad was awarded the sole minimum expansion capacity of 200 MMcf/d. The state-owned generator holds an option to increase the project's size to 310 MMcf/d. Including existing capacity, the Sierrita pipeline could pull up to 523 MMcf/d from El Paso's mainline upon completion.

The Sierrita expansion has an expected in-service date of April 2020, according to Kinder Morgan.

DEMAND GROWTH

Growing interest from midstream developers in expanding pipeline capacity delivering to, and within, northwest Mexico comes amid an anticipated ramp up in future gas demand across the region.

After receiving initial gas supply access in 2016, Northwest Mexico has been championed as an area for potential consumption growth given the region's robust agricultural industry and its related demand for natural gas-intensive fertilizers.

Beyond that, a growing number of combined cycle, gas-fired power plants have already replaced, or will soon replace, the region's older oil-fired units, creating new and potential demand from power generators.

While still in development, an LNG export terminal at Puerto Libertad, proposed by Mexico Pacific Limited, could create yet another significant source of demand as the state of Sonora looks to ramp up its export prowess.

CAPACITY GROWTH

IEnova's Sonora North and South pipeline network across Northwest Mexico, with a current total receipt capacity of 890 MMcf/d, appears to dwarf the region's total demand.

Last year, consumption across the northwest states of Sonora and Sinaloa averaged about 405 MMcf/d, but peaked above 600 MMcf/d during September -- typically the hottest month of the year.

But, with just two existing supply routes into Northwest Mexico, via the northern Sierrita Pipeline access point at the US border, and the southern Topolobampo Pipeline access point in Sinaloa state, there is still growing interest to expand receipt capacity to the region based on its demand-growth potential.

A third access point could come on Grupo Carso's Samalayuca-Sasabe Pipeline, which is currently under construction. The pipe will run parallel to the international border just south of New Mexico and Arizona and deliver up to 472 MMcf/d to an end point near the crossborder meter at Sierrita, with potential startup as early as August 2019.

-- J. Robinson, jrobinson@spglobal.com

-- John Hilfiker, jhilfiker@spglobal.com

-- Edited by Christopher Newkumet, newsdesk@spglobal.com