Mexico reaches deal for cross-border natural gas pipelines

Mexican President Andres Manuel Lopez-Obrador said his administration has reached a deal ending a $3 billion controversy over contracts for seven natural gas pipelines that were built by four companies south of the border.

During a Tuesday morning press conference, Lopez-Obrador announced that Mexico’s federal government had reached a deal on Monday night with Canadian pipeline operator TC Energy, a Mexican subsidiary of San Diego utility company Sempra Energy and Mexican construction firms Grupo Carso and Fermaca.

“We’d like to thank the companies for reaching an agreement that advances both natural interests and business interests,” Lopez-Obrador said.

Seeking to undo $3 billion in payments and to dispute force majeure clauses on the pipeline contracts, Lopez-Obrador launched a public review of the projects and requested international arbitration proceedings.

Either idle or incomplete, the pipelines are not delivering gas, but the clauses allowed the companies to collect payments due to delays and circumstances beyond their control, which included various delays ranging from the weather and landowner issues to hostility from indigenous groups — and even alleged acts of extortion at the hands of local government officials.

Mexico consumes more than 8 billion cubic feet of natural gas per day, but only produces 2.6 billion cubic feet per day — meaning that the rest needs to be imported. During the press conference, Lopez-Obrador said the agreement with the companies will allow the Mexican government to save $4.5 billion long-term.

Under the agreement with the pipeline companies, Mexican officials expect 63 percent of the natural gas from the seven pipeline projects will be used by government-owned power plants while the remaining 37 percent will be consumed by industrial customers.

“This guarantees a supply of gas for the electricity industry and national industry,” Lopez-Obrador said. “We won’t have blackouts in future years.”

Manuel Bartlett, director of Mexico’s state-owned power company Federal Electricity Commission, of CFE, said the first pipeline that will come into service will be the Sur de Texas-Tuxpan Pipeline. With most of its route underwater in the Gulf of Mexico, the pipeline will be used to move 2.6 billion cubic feet of natural gas per day from the Eagle Ford Shale of South Texas and the Agua Dulce Hub near Corpus Christi to the coastal state of Veracruz and then into the interior of Mexico.

“The Sur de Texas-Tuxpan and Guaymas-El Oro pipelines are among Mexico’s most important infrastructure projects, bringing more reliable supplies of clean U.S. natural gas to Mexico to help meet the growing energy needs of the country for generations to come,” Sempra Energy said in a statement.

Carlos Slim, a Mexican billionaire whose company Grupo Carso was the first of the pipeline companies to reach an agreement with the government, said the agreement will give Mexico access to the cheapest natural gas in the world. Some of that natural gas he said, will be used in the transportation sector as fuel for natural gas-powered cars and trucks.

“This will allow us to substitute diesel and gasoline, which are not only more expensvie but more polluting,” Slim said. “Natural gas is one-third the cost but there are also environmental benefits.”

The agreements come a month after Texas Gov. Greg Abbott sent a public letter to Lopez-Obrador asking the Mexican president to end the political stalement and to get natural gas from the Eagle Ford Shale and Permian Basin of Texas moving south.

Carlos Salazar, president of Mexico’s Business Leaders Coordinating Council, or CCE, called the signing of the agreements a “memorable day” — one where the government is providing the type of certainty and confidence that will attract investment.

“Mexico will have cheap energy,” Salazar said. “Today, we can have cheaper energy than the Europeans, cheaper than the Asian and without a doubt, cheaper than any country in Latin America. This represents an advantage for us to compete, grow and develop.”

The full version of this article first appeared on the Houston Chronicle – an Energy Voice content partner. For more from the Houston Chronicle click here.

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