Analysis: Mexico LNG tender signals further delay to Sur de Texas Pipeline

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Analysis: Mexico LNG tender signals further delay to Sur de Texas Pipeline

Denver — A recent LNG supply tender announced by Mexico’s state-owned electric utility CFE is signaling further delay ahead for the Sur de Texas-Tuxpan marine pipeline, potentially into September.

The tender announced Friday calls for four cargoes delivered to Mexico’s Gulf Coast import terminal at Altamira with two-day delivery windows in the first, second, third and fourth weeks of August, including a delivery window from August 30 to 31.

The closing date for the tender is Wednesday with awards likely to be announced by later this week.

Including volumes to be delivered next month, CFE will have imported 22 cargoes to Altamira in 2019, just four fewer than the number imported through August last year, S&P Global Platts Analytics data shows.

This year, though, the startup of imports on the 2.6 Bcf/d Sur de Texas-Tuxpan pipeline was expected to nearly halve the LNG-supply requirement at Mexico’s Gulf Coast import terminal.

Continued tendering for LNG supply there comes as arbitration proceedings between the CFE and pipeline developers indefinitely delay the marine pipeline’s in-service date.

Rateable LNG supply delivered to Altamira in August, and particularly during the final days of the month, appears to signal the potential for at least four to five week of continued delay to the pipeline’s startup.

IMPACT

According to Platts Analytics, initial flows on the Sur de Texas pipeline could range between 1 Bcf/d and 1.5 Bcf/d, with an immediate effect of displacing about half of the LNG imports at Altamira.

Further downstream, new supply imported on the pipeline should access at least three additional sources of demand including local and regional consumption around Tuxpan, spare capacity on Tamanzuchale Pipeline and demand downstream from the Cempoala compressor station.

While only a small volume of the imported molecules are likely to reach southern Mexico, the pipe should help leave more of southern Mexico’s own production within its boundaries.

The incremental supply in southern Mexico should also help to improve grid reliability in the Peninsular region where insufficient gas supply has contributed to blackouts this year.

On the US side of the border, startup of Sur de Texas should lift gas prices, particularly in South Texas where supply likely contracted by CFE to feed the pipeline has been weighing on the regional balance.

With previously contracted supply pushing back into the South Texas market, cash prices in the region have languished this summer.

At NGPL STX, month-to-date cash basis is down 6 cents/MMBtu compared to the July 2018 average. At Texas Eastern STX prices are down 11 cents/MMBtu. Even further north at Houston Ship Channel, cash basis is off 15 cents/MMBtu this month compared to the July 2018 average, S&P Global Platts data shows.

ARBITRATION

On June 24, just two weeks after the Sur de Texas pipeline reached mechanical completion, the CFE sent a request for arbitration over capacity payments made on the 2.6 Bcf/d Sur de Texas-Tuxpan pipeline to Marina del Golfo, the joint-venture company owned by the pipeline’s developers TC Energy and IEnova.

At issue was a declaration of force majeure made by Marina del Golfo during the project’s construction, which afforded the JV company the legal right to charge CFE for capacity on the pipeline before it entered service.

According to Platts Analytics, capacity payments made during the pipeline’s 287-day construction delay would total over $289,000. Including capacity charges from at least six other delayed pipelines, all of which the CFE is now disputing in international courts, payments at stake could total nearly $800,000.

https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/073119-analysis-mexico-lng-tender-signals-further-delay-to-sur-de-texas-pipeline

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