U.S. Natural Gas Exports to Mexico Taking Off

Just as Space X rockets may be taking off from the beaches at Boca Chica near Brownsville, natural gas exports to Mexico look to also sky rocket in the coming years. Due to changes in Mexican law in 2013 opening the electricity market to private investment, billions of dollars in contracts have been let to build power plants, electrical distribution facilities and natural gas pipelines. In turn U.S. pipeline companies and gas producers have moved to capture the lion’s share of that market. Given the fact that Texas and Gulf Coast producers have been rapidly losing their old Northeast and Midwest markets to Marcellus producers this has proven to be a timely and vital new market. The Energy Information Agency (EIA) estimates that natural gas exports to Mexico were 3% of production in April 2015 and are expected to grow to 5% by 2030. While not nearly as important as the domestic power sector to U.S. producers nonetheless it represents a good piece of business.

So just where are these projects crossing the border and linking up to Mexican pipelines? Let’s take a look at recent developments. Last year Kinder Morgan’s (KM) Sierrita gas pipeline went online carrying 1.9 Bcf/day into Mexico. The 36-inch 60-mile line runs from El Paso Natural Gas’s (owned by KM) existing south mainlines near Tucson to Sasabe, AZ before interconnecting to Mexican pipelines at the border. Estimates for gross exports to Mexico are estimated to rise to 4.6 Bcf/d by 2024 and the Sierrita will contribute a fair share of that export capacity. This presentation from Kinder Morgan contains more detailed breakdowns of system capacities.

In addition to the newly constructed Sieritta pipeline, KM also has Texas intrastate facilities. Included in the operations of the KM Tejas system is the Morgan Border Pipeline system. Border Pipeline owns and operates an approximately 97-mile, 24-inch diameter pipeline that extends from a point of interconnection with the pipeline facilities of Pemex Gas Y Petroquimica Basica at the International Border between the United States and Mexico in Hidalgo County, Texas, to a point of interconnection with other intrastate pipeline facilities of KM Tejas located at King Ranch, Kleburg County, Texas. The pipeline has a capacity of approximately 300 million cubic feet of natural gas per day and is capable of importing this volume of Mexican gas into the United States or exporting this volume of gas to Mexico.

Drillinginfo Pipeline Layer Map

The Mier-Monterrey Pipeline, also owned by KM, consists of a 95-mile natural gas pipeline that stretches from the International Border between the United States and Mexico in Starr County, Texas, to Monterrey, Mexico and can transport up to 375 million cubic feet per day. The pipeline connects to a 1,000-megawatt power plant complex and to the PEMEX natural gas transportation system.

Next up are newly announced pipelines, such as Howard Midstream Energy Partners (HEP) June 23, 2015 announcement of the Nueva Era Pipeline, an approximately 200-mile, 30-inch pipeline connecting its existing Webb County Hub to Escobedo, Nuevo Leon, Mexico, and the Mexican National Pipeline System in Monterrey. Expected to be in-service in July 2017, the Nueva Era pipeline, which will be developed in conjunction with HEP’s Mexican partner, will provide seamless transport for up to 600 mcf/day from South Texas producers directly to end-users in Mexico. San Antonio based HEP said it expects Nueva Era transportation service rates from U.S. – Mexico border to Escobedo to be between US $0.13 and US $0.20 per mcf, subject to the shipper’s required term, level of service, and volume commitment, and pursuant to all Mexican legal requirements. HEP CEO Mike Howard made an insightful commit during the press release stating that “…When you look at the state of Texas, we have about 300,000 miles of pipe in Texas, and in all of Mexico they have about 9,000 miles of pipe. I think the prize is that there are going to be large infrastructure requirements in Mexico.”

The biggest proposed natural gas pipeline project in South Texas is the South Texas-Tuxpan Pipeline, a 42-inch diameter line that would run 497.1 miles under the Gulf of Mexico from South Texas to Tuxpan, in the state of Veracruz. The pipeline, valued at $3.1 billion, would have 2.6 Bcf/day of capacity and have interconnections with the Nueces-Brownsville and the Tuxpan-Tula pipelines. This pipeline is among the $9.8 billion in gas transport and power plant projects recently issued requests for proposals from the Federal Electricity Commission (CFE), Mexico’s state-owned electricity utility. The contract has an expected award date of December 2015 with a start date of June 2018.

In March of 2014 Energy Transfer subsidiary Houston Pipe Line Company received FERC approval to build and operate a pipeline to export or import of gas at the international boundary between Hidalgo County in Texas and the city of Reynosa in Tamaulipas state in Mexico. Houston Pipeline will use existing infrastructure and right-of-way to construct a new 24-inch pipeline from near Edinburg, TX to a new international border crossing near McAllen, TX. While the new 23 mile extension will have a design capacity of approximately 140 mcf/day, the 15 year contract with CFE calls for transportation services of 930,000 MMBtu/day.

In January of 2015 Mexico’s CFE selected a consortium of companies that includes Dallas-based Energy Transfer Partners (ETP) to construct two pipelines in West Texas. The Trans Pecos pipeline would run 143 miles from the Waha natural gas hub near the town of Pecos in Reeves County down to the border town of Presidio, where it would connect with a short 1,000 foot cross-border pipeline connecting to another line in the Mexican town of Ojinaga. At 42 inches in diameter, it would be capable of moving 1.4 billion cubic feet of natural gas a day. Local opposition has heated up as local residents learned of the construction and while Energy Transfer has an approved T-4 permit from the Texas Railroad Commission compromise may prove difficult.

The Comanche Trail pipeline will be a 192 mile 42-inch pipeline delivering 1.1 Bcf/day, from the Waha hub to the international border at San Elizario, TX, just south of El Paso. The consortium for this project is comprised of Energy Transfer Partners, MasTec, and Carso Energy (owned by Carlos Slim, Mexico’s richest man).

The Roadrunner Gas Transmission pipeline extends from ONEOK Partners’ Wes Tex pipeline system at Coyanosa, TX west to a new international border-crossing near San Elizario, TX. The first phase of the project for 170 MMcf/d of available capacity is expected to be completed by the first quarter of 2016. The second phase, which will increase the pipeline’s available capacity to 570 MMcf/d, is expected to be completed by the first quarter of 2017. The third and final phase of the project is expected to be completed in 2019 and will increase available capacity to 640 MMcf/d.

That’s three (3) existing pipelines and six (6) proposed pipelines with combined capacity of 6.5 Bcf/d and representing capital budgets in excess of $7 billion. A lot of pipe and money in anybody’s book.

References and image sources:

Vice News, Mexico Wants to Run a Pipeline Through West Texas, Sasha Von Oldershausen, June 22, 2015.

NGI Shale Gas Daily, Texas-Mexico Pipeline Developer Looks Forward to Gathering Mexican Gas, Too, Joe Fisher, June 23, 2015.

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