Dark clouds of delay may be forming in what has been considered a sunny outlook for U.S. natural gas pipeline exports to Mexico.

A recent Mizuho Securities USA LLC research note expressed concern about a Platts estimate that as many as nine pipeline project delays—averaging 350 days from original in-service dates—within Mexico could force 2018 exports to remain at the current level of about 4.3 billion cubic feet per day (Bcf/d).

“Recent reporting on the pipeline buildout within Mexico suggests bottlenecks and construction delays could prevent export growth of U.S. natural gas to Mexico via pipeline until 2019,” said the Mizuho report. Pipeline completion delays in Mexico’s interior are expected to have several immediate impacts:

  • As much of 4.4 gigawatts of the country’s 7 gigawatts in new gas-fired power generation awaits fuel from the delayed pipelines, according to Platts;
  • Delays would eliminate the expected 2018 incremental gas exports of 0.7 Bcf/d from the U.S.; and
  • Continued robust natural gas production in the U.S. requires demand growth to balance markets—delays to Mexico and the startup of Cameron LNG diminish the hopes of achieving that in 2018.

Upshot: “We see delays on exports as a clear negative for natural gas prices,” said Mizuho. “Gassy E&Ps under coverage remain well-hedged in 2018, but the outlook for 2019 and beyond is less certain.”

Timothy Rezvan, Mizuho’s managing director for Americas research, told Hart Energy in an email that he perceived some diminished confidence in Mexico’s energy reform but that the country was making a clear pivot away from LNG imports to U.S. shale gas imports.

“The pivot may take longer than anticipated and increase near-term reliance on LNG imports, but it will eventually happen,” Rezvan said.

Mizuho expects U.S. pipeline gas exports to Mexico to reach 8 Bcf/d but delays mean achieving that level won’t happen until 2021 or later, with much of the lift from current levels deferred by about 18 months. LNG exports will ramp up to 8 Bcf/d by 2021.

Among the challenges facing Mexican pipeline construction is similar to that faced by pipeline companies in the U.S. and Canada: social protests. The 497-mile underwater Sur de Texas pipeline, a $2.1 billion joint venture between TransCanada Corp. and a unit of Sempra Energy Mexico, is planned to connect the Nueces-Brownsville gas pipeline to the Tuxpan-Tula gas pipeline in Mexico. 

“I do see parallels in Mexico and the U.S./Canada,” Rezvan said. “Liberals and environmentalists are opposed to the pipelines, given the negative impact to the environment, which may include areas that are culturally sensitive to indigenous people.”

Sur de Texas has been delayed by an injunction by a Mexican fishing cooperative that operates in the Gulf of Mexico. TransCanada’s Tuxpan-Tula project has been opposed by the Otomi people in the state of Puebla, who have argued that the pipeline’s construction violates sacred ground.

Rezvan said he expects the companies to ultimately prevail but “the process of jumping through regulatory hoops and letting the social/indigenous protestors have their day in court defers events.”

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.