TC Energy Corp. is forecasting substantial earnings and volume growth from its Mexico natural gas pipeline network over the coming years, executives said Tuesday.
“[T]he energy fundamentals in Mexico strongly support the need for additional gas supplies to meet growing demand across the industrial heartland in central Mexico, as well as in southern Mexico and the Yucatan Peninsula,” TC’s Stanley Chapman III, vice president in charge of U.S. and Mexico natural gas pipelines, said Tuesday during the Canadian firm’s investor day in Toronto.
TC’s Mexico assets are generating “predictable, growing cash flow” as demand on the system continues to rise, Chapman said.
He cited that flows on the Sur de Texas-Tuxpan (STT) offshore pipeline have averaged above 800 MMcf/d so far this year. Mexico’s state power company Comisión Federal de Electricidad (CFE) is the anchor shipper.
TC and CFE resolved arbitration proceedings earlier this year related to natural gas transport contracts on multiple TC pipelines. The contracts have since been consolidated into a single fixed-rate, long-term service agreement.
“[T]he energy fundamentals in Mexico strongly support the need for additional gas supplies to meet growing demand across the industrial heartland in central Mexico, as well as in southern Mexico and the Yucatan Peninsula,” Chapman said. “And most importantly, with the agreements that we’ve executed earlier this year, we now have a real strong alignment with the Mexican government at both the federal and the state levels, and a first-of-a-kind partnership with CFE [where] we can leverage each other’s strengths.”
He added, “This is how we get comfortable allocating additional capital in the country.”
As its Mexico pipeline network continues to grow, TC expects Mexico’s contribution to companywide earnings before interest, taxes, depreciation and amortization (EBITDA) to more than double to an estimated $1.7 billion by 2026 versus $700 million in 2022.
A lynchpin to the projected growth is the $4.5 billion Southeast Gateway offshore pipeline, which TC is developing with CFE. TC expects the project to enter commercial service in mid-2025.
Southeast Gateway would serve industrial demand in southern Veracruz state “and potentially some LNG export markets,” Chapman said. The plan also is to supply gas to Tabasco state, “where we would tie into a third-party downstream pipeline to support incremental power generation growth.”
A significant portion of the expected EBITDA growth also comes from the resolution of the contractual disputes with CFE, according to Chapman.
“The macroeconomic and energy fundamentals, particularly for natural gas, are robust in Mexico,” Chapman said. He cited that Mexico is the world’s 15th largest economy, “and it continues to grow as evidenced by strong employment numbers this year and record export figures in the month of September.”
TC expects Mexico’s natural gas demand to reach 12 Bcf/d by 2030, up about 35% from current levels, “with strategic government projects creating over 1 Bcf/d of incremental gas demand in the southeast alone by 2025,” he added. “Now given Mexico’s limited natural gas production, this increase in demand will likely be served by supplies in the U.S., and more specifically the Permian [Basin]…”
TC expects Mexican gas imports via pipeline from the United States to reach 9 Bcf/d by 2030, up from about 6 Bcf/d currently.
“Mexico’s dependency on the U.S. gas market continues to grow,” Chapman said. He said that discussions around a “strategic gas reserve, which would be supported by U.S. gas storage, recently commenced with various parties to ensure Mexican demand could be met without interruption, particularly on peak days.”
Chapman said TC expects much of Mexico’s gas demand growth to come from the power sector, citing that CFE plans to build more than 10 new gas-fired plants by 2025 with combined capacity of over 7 GW. “We’re really excited that the majority of these plants are going to be served by our assets,” he said.
With regard to Mexico, where TC has invested more than $11 billion over the last 30 years, “we take a comprehensive, long-term view to help guide our capital allocation decision,” Chapman said. This “entails being honest about the in-country risks, but also understanding them in the context of our assets and our relationships, and how we can de-risk the overall proposition for us.”