Mexico Races for Pipes to Reach More U.S. Gas Before Summer

(Bloomberg) -- Mexico is racing against the clock to get natural gas pipelines online this summer.

The nation has found itself “in a tight situation,” David Madero, who oversees the government’s Natural Gas Control Center, said in an interview in Mexico City. The season when gas demand typically peaks is fast approaching, and Mexico is still dealing with setbacks in getting long-anticipated pipelines into service.

The delays are causing a glut of natural gas to swell up north of the border as U.S. shale drillers wait for the lines to carry their fuel to market. Citigroup Inc. warned in a research note two months ago that the holdups in Mexico would probably force gas in the Gulf Coast to trade at heavy discounts.

Mexico Races for Pipes to Reach More U.S. Gas Before Summer

“The good news is that we are constructing a lot, the bad news is that we are a bit delayed, which is rather normal in this industry,” Madero said on Wednesday. “We would have loved to see these projects online before the peak of the demand this summer.”

The seven gas projects under construction, in addition to others in the northwest, are part of the government’s five-year energy plan. Technical hitches and issues with local landowners are to blame for the delays, according to Madero, who said he’s confident they’ll eventually all get done.

“If they are delayed one month, three months or one year more, well, that is how long they will take," he said, emphasizing that the delays hadn’t reached a crisis point.

Delay Plans

A director of Mexico’s state-owned utility said earlier this month that it’s pushing pipeline builders so it can complete new gas-fired generation by the end of 2018. Delays of three to four months could push back plans to as late as 2019 in some cases, Guillermo Turrent said on the sidelines of a conference in Houston on June 20.

The Los Ramones Phase II line, which state-owned Petroleos Mexicanos is developing with private equity firm First Reserve Corp. and BlackRock Inc., is meanwhile “practically operating at 100 percent,” Madero said. The pipeline network, which imports gas from the U.S., is projected to boost U.S. gas deliveries south of the border by about 17 to 22 percent, according to Bloomberg New Energy Finance.

“If everything goes as well as we hope, for 2020, we are going to have capacity to import more than 14 billion cubic feet per day, of which we would expect to use a little less than half,” Madero said. The country brought in 129.9 billion cubic feet of U.S. gas by pipeline in March alone, Energy Information Administration data show.

Mexico currently imports around 4.2 billion cubic feet of natural gas per day, Madero said. The country estimates import demand from the U.S. could reach as much as 7 billion to 7.2 billion cubic feet a day in the next five years, he said.

Mexico is in talks with the Mexican Petroleum Institute and consultants from Texas to analyze geologic formations for suitable underground gas storage sites, Madero said. Possible locations are in the northern Gulf of Mexico area in Tamaulipas state, Veracruz and Tabasco, he said. His agency hopes to make its first formal proposal to the energy ministry as soon as this year, according to Madero.