(Bloomberg) -- After Mexico reached a deal ending a months-long dispute with some pipeline operators in the country, Sempra Energy's Mexico unit, IEnova, and TC Energy Corrp. are free to move forward with their $2.5 billion Sur de Texas-Tuxpan natural gas project. Now the hard part starts.
Completed in June, the massive conduit is expected to be in service within about a week. But pipeline bottlenecks in Mexico threaten to limit flows on the line, which is supposed to deliver gas from Texas to power generation plants in Tamaulipas and Veracruz. At its full capacity of 2.6 billion cubic feet a day, the pipeline would grow Mexico's import capability by 40%.
But flows are likely to reach just 500 million cubic feet a day in September and 1.2 million in the first quarter of 2020, Tudor Pickering Holt & Co. said in a research note Tuesday. The firm projected that natural gas imports from the U.S. would slow from 2021 due to decreased demand.
READ: Mexico's AMLO Sees $4.5 Billion in Savings in Pipeline Pacts
Genscape Inc. Mexico gas analyst Ricardo Falcon estimates that September flows will be even lower -- no more than 200 million to 300 million cubic feet a day, depending on whether Mexico's Federal Electricity Commission, or CFE, decides to keep three liquefied natural gas cargoes it's ordered from Royal Dutch Shell Plc for next month. The cargoes could create an abundance of supply, he said.
The Sur de Texas-Tuxpan also faces the challenge of servicing multiple points throughout the country, putting it in competition with other pipelines, as well as LNG arriving at the port of Altamira, according to Falcon. And while the line's capacity is substantial, it may not be able to ramp up quickly. “In our assessment there's going to be an incremental process to reach more significant gas flows,” he said.
Demand is an issue, as well. CFE has said 14 power generation plants will potentially receive gas from the line, but only five have been confirmed for development so far, said Falcon. Meeting its goals will be tough before the end of the government term in 2024, he added. “How much capacity can actually come online before the end of the current presidential administration? It's still a question that has to be answered by CFE.”
--With assistance from Naureen S. Malik.
To contact the reporter on this story: Amy Stillman in Mexico City at astillman7@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Catherine Traywick
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