Project Financing for Private and Public Pipelines

Over the last couple of years, López Velarde, Heftye & Soria (LVHS) has been very involved in the midstream segment of the Mexican oil and gas industry, particularly in pipeline development projects. According to Jorge Jiménez, Partner at LVHS, the firm is ready to take on the project demands of PEMEX and CFE by following tendering steps with different developers and subsequently guide them through the construction and financing stages of pipeline projects.

“We have already seen huge growth in the midstream segment during the past two years, specifically in pipeline development. We are currently involved in the development of some of the largest pipelines in Mexican history in the north of the country. However, this is only a fraction of what will come during the next years,” Jiménez highlights. Besides LVHS’ current involvement with long-standing pipeline developers in Mexico, Jiménez is convinced that other foreign companies and investors will seek opportunities in this growing sector. Additionally, he sees great room for the maintenance and upgrading of the aging infrastructure of the country’s crude oil and liquids pipelines networks, which will require significant investment. “Considering that the Mexican oil and gas industry will now be liberalized, we foresee dramatic private investment from international companies in order to address the transportation shortages of liquids, natural gas, and crude. That represents major potential for companies from around the world, and for LVHS to assist them,” he asserts. 

LVHS plays an important role in getting the developers’ message across to lenders as well as assisting them in understanding the country’s legal restrictions. “Our firm has worked with the lenders that have financed LNG terminals in Mexico, as well as pipeline projects and power plants,” says Jiménez. These LNG terminals are Altamira, Costa Azul, and KMS, which are respectively located in Tamaulipas, Baja California, and Colima. “Now that the legal framework and the structure of the oil and gas sector will be much more commercially-oriented and internationally standardized, we believe that the existing players in the industry will feel much more comfortable in providing further opportunities for financing. This will bring new players into the market as it evolves,” says Jiménez. “We will be able to bring significant added value to companies interested in participating in terminals and pipeline developments due to our accumulated experience in natural gas projects. As we adjust our successful models to new endeavors, we will be able to deal with long-term economic challenges in accordance with the requirements imposed by regulatory agencies.”

“In order for the industry to develop in a healthy manner, there must be a clear balance between international companies and local content that allows the industry to flourish efficiently and competitively. Otherwise, it could backfire, just as local content laws did in the Brazilian energy sector,” Jiménez explains. “We are envisioning massive collaboration between foreign firms and local companies that know the market, its consumers, and understand the regional opportunities. In addition, there will be critical issues such as land ownership, labor concerns, and day-to-day operational tasks, which will become another advantage that local entrepreneurs can offer newcomers. The technical experience of international companies will also serve as a balancing factor to achieving efficient partnerships,” says Jiménez.