TC Energy signs deal with CFE for US$4.5 billion gas pipeline

TC Energy reported on Thursday, Aug. 4, 2022 that it reached an agreement with CFE to develop an offshore natural gas pipeline worth US$4.5 billion that will supply the fossil fuel to Mexico’s central and southeastern regions.

TC Energy was the first private company to build and operate gas pipelines in Mexico. With an investment of more than US$5 billion through more than 2,470km of gas pipelines, the company supply natural gas to several regions of Mexico.

The agreement with CFE comes at a time when Canada and the US continue their commercial quarrel with Mexico within the framework of the USMCA.

TC Energy indicated that pipeline approval would expand its guaranteed capital program to US$33 billion and could increase its adjusted EBITDA growth prospects for between 2021 and 2026. The project will also expand CFE’s capacity to supply natural gas to the country. Last month, TC Energy said it would start the pipeline onshore in Veracruz, mentioning a US$5 billion investment.

CFE has been looking for partners to reinforce its pipeline infrastructure to supply gas-fired plants in states isolated from the nationally-interconnected grid. Developing these projects would allow CFE to optimize the use of existing natural gas pipeline systems, while providing additional sources of LNG supply for markets in Mexico.

The deal comes amid surging demand for natural gas around the world. The developments furthermore form part of Mexico’s efforts to strengthen its gas supply infrastructure. The country is also looking to promote itself as a key LNG export hub, moving from the Atlantic and Pacific coasts to Asia and Europe by taking advantage of the competitive gas prices in North America. Aside from TC Energy, LNG projects in Mexico include those under development by New Fortress Energy, Sempra,  and Mexico Pacific Limited.

According to the financial statement of CFE sent to the Mexican Stock Exchange, it lost US$430 million. The losses are mainly due to soaring prices for the natural gas that CFE uses in its plants to generate electricity. Nevertheless, its US$2.31 million total losses over 1H22 are much lower than the US$689.23 million it lost in 1H21.

TC Energy reported positive 2Q22 results, with an EBITDA “modestly higher” than that of the same quarter in 2021. “We are currently evaluating new growth projects driven by Mexico’s economic expansion and the need to connect natural gas to new regions of the country to serve power plants, industrial demand and LNG exports and, in doing so, reduce reliance on costly, carbon-intensive fuel oil. Potential projects include the completion of the central segment of Tula as well as a new offshore pipeline that would connect additional natural gas supply to Southeast Mexico and capacity expansions on existing asset,” the company reported.