Sur de Texas – Tuxpan: A Band Aid on Growing Demand

Flow capacity has increased at the Sur de Texas – Tuxpan marine pipeline since operations finally began in September 2019 after a heated arbitration case between the Federal Electricity Commission (CFE) and private entities TransCanada (TC Energia) and IEnova. On July 13th the pipeline transported 1.339 Bcf/d into Mexico’s southeast, up 167.8 percent from the 50 MMcf/d reported in 2019. Although its current carrying capacity was slightly below the 855 km-long Ramones I pipeline, it is projected to become the country’s main natural gas import terminal  after the Tula-Villa de Reyes pipeline enters into service later this year (886 MMcf/d).  

“There is no reason to expect supply shortages this summer,” Gadex energy consultant Eduardo Prud’homme told NGI’s Mexico GPI. “I would say Mexico is in the best condition ever for meeting summer demand. Hopefully I am right and we are going to have a very boring remainder of the summer.” 

The US Energy Information Administration (EIA) reported a 1.7 percent increase of natural gas exports to Mexico from 2019 to 2020, and expects continued growth as more pipeline infrastructure is built and natural gas-fired power plants come online in Mexico. During the first half of 2021 demand rose 15 percent which has helped support strong natural gas prices and compensate for weaker domestic demand. Although US natural gas producers were happy to find an alternative market to pivot to, critics however are disconcerted by a growing “overreliance” on imports.  

At MBNs Oil and Gas 2021 Summit, Dr. Héctor Moreira, Commissioner at CNH, commented that the nascent gas industry lacks a national development plan and that after years of exploration there should be a shift in priority towards production and distribution infrastructure. His point of view was substantiated by Iván Galban, Commercial Director of Exterran, who highlighted the need for infrastructure growth; both pointing to an underfunded and uneven distribution network which results in varying prices throughout the country. This evidenced in regional price sputtering in August Nymex with a fall of 4.6 cents d/d and September by 4.7 cents; thereby marking three days of straight losses.  

“The challenges at this point are entirely within Mexico, related to interconnectivity between pipelines. This includes large interstate pipelines or last-mile pipelines that connect with local distribution companies or individual projects,” Geoff Street, Director of Natural Gas Origination at Tenaska Marketing Ventures told MBN.  

The Program for the Development of the Isthmus of Tehuantepec (PDIT) proposal includes the construction of Salina Cruz – Tapachula, a 220km pipeline to transport natural gas meant to strengthen ties between the opposite ports of the 77-mile isthmus. Ultimately, it would be the first big step towards bridging the economic gap between the industrialized north and the south. However, the pipeline project alone requires US$434.8 million and was supposed to enter into service by 2022, but that is unlikely given that the pandemic has diverted funds and kept workers home, thus pushing back many development projects.

Nevertheless, according to Gadex energy consultant Eduardo Prud’homme, the success of the program also depends on PEMEX’s ability to ramp up stagnant gas production. Normally, imports would be another option, but despite increased flows from the Sur de Texas – Tuxpan pipeline, it would still not cover the regions deficit given the current distribution system configuration.

Overall, while the federal government has made progress in building up the country’s infrastructure in recent years, it clear that an increased carrying capacity at the Sur de Texas – Tuxpan marine pipeline will only temporarily help mitigate natural gas prices. As pointed out by CNH Commissioner Moreira, the country needs to start developing the country’s natural gas production capabilities if the country intends to meet its growing exponential demand. In order for this to happen there needs to be a revitalization of private investor participation, many of whom have become hesitant under AMLOs unfriendly regulatory environment.