Mexico pipeline delays cap Permian gas flows

Mexican natural gas pipeline development delays are limiting the amount of gas that can flow from the Permian basin in west Texas to Mexico markets, contributing to growing concerns around takeaway issues in that region.

Delays in natural gas pipeline construction in Mexico have largely stemmed from issues such as environmental concerns, permitting and consultations with indigenous and collective landowners, said consultant Nina Fahy with Energy Aspects.

As a result, two major US pipelines transporting gas from the Permian basin to the US-Mexico border have flowed at far below capacity, limiting US gas export growth.

The Comanche Trail pipeline is a 314km (195mi) pipeline that transports gas from the Waha hub near Fort Stockton, Texas, to the US-Mexico border in San Elizario, Texas. That pipeline can transport up to 1.1 Bcf/d (31mn m³/d) of gas, and went into service on 30 January 2017.

The Trans-Pecos pipeline is a 238km (148mi) pipeline that also runs from the Waha hub to the US-Mexico border near Presidio, Texas. Trans-Pecos can transport up to 1.4 Bcf/d, and started service on 31 March 2017.

Both pipelines are part of Energy Transfer Partner's long-term agreement to provide natural gas to Mexico's Comision Federal de Electricidad (CFE), which in turn provides that gas to industrial and electric generation customers in northern Mexico.

According to the latest US Energy Information Administration (EIA) export data, exports by point of exit at border crossings in San Elizario and Presidio stood at a combined total of just over 125mn cf/d in February, significantly lower than their designed flow capacity, and a fraction of overall US gas exports to Mexico.

Natural gas exports to Mexico from the US, via pipeline or liquefied natural gas (LNG), totaled 4.6 Bcf/d in 2017, according to the EIA.

The oil-rich Permian basin in west Texas is in the midst of a significant boom in drilling activity, as energy companies expand their operations to take advantage of high productivity returns in the basin.

While oil and associated gas production is growing in the Permian, so are concerns around the ability of existing infrastructure to transport those volumes out of the basin to lucrative markets.

To improve Permian flows to Mexico's markets, a significant ramp-up is needed on new pipelines, such as the El Encino-La Laguna pipeline, Fahy told attendees at the Argus North American Natural Gas Markets conference in Houston last week.

The El Encino-La Laguna pipeline is a 465km gas pipeline that runs from El Encino in Chihuahua state to La Laguna in Durango state. The pipeline has 1.5 Bcf/d of capacity, and was completed in March, according to Mexico's energy ministry.

But it is unlikely that a rapid ramp-up in volumes on that pipe will occur when it enters service, as downstream delays are likely to effectively cap flows, Fahy said.

In addition to feeding nearby power plants, the El Encino-La Laguna pipeline will flow into the next section of gas pipeline: the 442km Laguna-Aguascalientes pipeline, which will have a capacity of about 1.2 Bcf/d and is due to come online in November.

The La Laguna-Aguascalientes pipeline, in particular, has renewed potential for delays, amid an ongoing issue with local collective landowners earlier this month which may take some time to resolve, according to Fahy.

From there, gas will flow into the 378-km Villa de Reyes-Aguascalientes-Guadalajara pipeline, which has a capacity of 886mn cf/d and will deliver gas to certain CFE power plants in Jalisco state, as well as other pipelines. That pipeline is also due to come online in November.

As more downstream delays continue to be identified, the timeline for a marked increase in pipeline capacity utilization is continuing to extend. This year looks unlikely to be a consistent relief valve for the growing Permian supply, Fahy said.