Home Energy Mexico’s Fermaca gas line stalled on new talks

Mexico’s Fermaca gas line stalled on new talks

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The last leg of Fermaca’s Wahalajara natural gas import pipeline system remains out of service pending resolution of arbitration with Mexico’s state power company CFE.

The 886mn cf/d Villa de Reyes — Aguascalientes — Guadalajara (VAG) pipeline was mechanically complete on 31 March but has not begun flowing gas because of ongoing arbitration, CFE told Argus.

The nature of the VAG arbitration remains unclear. Fermaca said last September it had re-negotiated pipeline contracts with CFE.

CFE declined to comment further because of ongoing arbitration and Fermaca did not respond to requests for comment.

CFE sponsored a 25-line natural gas build-out during the previous administration designed to increase network capacity to 15 Bcf/d, but when President Andres Manuel Lopez Obrador took office in December 2018 he claimed the contracts were prejudicial to CFE. His government re-negotiated seven pipeline contracts under threat of arbitration.

By September 2019, Fermaca, Grupo Carso and IEnova had renegotiated to include repayment of some fixed capacity payments, adjustments to tariffs and extension of contract terms that the government said would save the utility $4.5bn. But negotiations with TC Energy continue to drag, with talks related to its Tuxpan-Tula and Tula-Villa de Reyes pipelines not expected to conclude before December.

Lopez Obrdaor has said his government will respect contracts awarded under the 2014 energy reform that dismantled CFE and state-owned Pemex’s monopoly but the government has since tried to force contract renegotiations in gas and power and called to review oil and gas upstream contracts.

The VAG pipeline is the third and final leg in Fermaca’s 5 Bcf/d Wahalajara system that will draw gas from Waha to the central Mexican city of Guadalajara, providing a new outlet for Permian Basin supply.

US gas exports from Texas increased by only 0.2 Bcf/d between 2016 and 2019 because of delays in pipelines and interconnections with demand centers in Mexico, the US Energy Information Administration (EIA) said last week.

The first two legs of the Wahalajara system — El Encino-La Laguna and La Laguna-Aguascalientes — launched by December 2019, with the VAG pipeline originally set to launch by March.

Mexico depends on US pipeline imports for 67pc of its gas, with imports of 5.27 Bcf/d in April, up from 4.61 Bcf/d in April a year earlier, according to the latest information from the energy ministry.

Once the Wahalajara system starts, US pipeline exports are expected to eventually rise. Pipeline operator Cenagas hopes to integrate the VAG pipeline and other independently operated lines into one national system, but independent operators have had a mixed response.

To read the original article from our partner, Argus Media, click here.

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