— Contract disputes between the Mexican government and natural gas pipeline operators are reportedly close to an end, indicating that the long-awaited Sur de Texas-Tuxpan marine pipeline could begin operating later this month.

State-owned power generator CFE and private natural gas pipeline operators could finalize agreements to modify terms of the disputed contracts by this Thursday, Mexican President Andres Manuel Lopez Obrador said in a morning briefing to the public.

Arbitration in international court may be avoided for all seven pipelines, a process that TC Energy said could have extended into early 2021.

According to Lopez Obrador, a Mexican company came to resolutions first. The president did not specify a specific company or project name, but this may indicate that Grupo Carso or Fermaca may have set the tone. The companies accepted the dialogue and the revision of the conditions of the contracts presented by the CFE, Lopez Obrador said.

Pipeline operators had declared forces majeure amid unforeseen delays in pipeline construction, which were largely the result of conflicts with indigenous groups over land usage and ownership.

CFE owns the majority of the new pipeline capacity in question and has been forced to make capacity payments to Grupo Carso, IEnova, TC Energy and Fermaca for pipelines that were incomplete or delayed.

On June 24, just two weeks after the Sur de Texas-Tuxpan Pipeline (STTP) reached mechanical completion, CFE sent a request for arbitration over capacity payments made on the project to Marina del Golfo -- the joint-venture company owned by the pipeline's developers TC Energy and IEnova.

CFE's subsequent refusal to issue a proof of acceptance has delayed the startup of service on the project, stranding gas contracted for export in South Texas and leaving Mexico short on much-needed supply from the US.

In the meantime, CFE has hedged much of the lost supply from LNG imports. Lower global gas prices hovering around $4-$5/MMBtu have made imports of the super-cooled fuel less costly this summer compared with last.

IMPACT

The STTP system is the only pipeline among those in dispute that is complete and could start flowing natural gas following final closure of the contract negotiations.

Platts Analytics estimates that the marine pipeline could flow as high as 1 Bcf/d based on downstream connectivity and modifications. The STTP system will deliver gas to the Altamira V power plant, the 500 MMcf/d Monte Grange interconnect and the TC Energy Tamazunchale Pipeline at Naranjos.

The new pipeline, coupled with the Cempoala Compressor Station reversal project, should allow supply to flow into southern Mexico, an area that has been subject to shortages this year on falling domestic production.

-- John Hilfiker, jhilfiker@spglobal.com

-- J. Robinson, jrobinson@spglobal.com

-- Edited by Zac Aiuppa, newsdesk@spglobal.com