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Oh Rio, Rio – Gas Across the Rio Grande – The Mexican Gas Infrastructure Boom

Mexico’s pipeline infrastructure is struggling to meet booming demand for cheap US natural gas imports across the Rio Grande. To open the way for increased flows of gas the state energy company PEMEX has launched an ambitious pipeline construction program on both sides of the border. Today we describe these pipeline projects.

In Part I of this blog we noted a dramatic increase in Mexican natural gas imports from the US over the past two years. Mexico’s imports increased because the country’s demand for natural gas rose significantly while domestic production declined. PEMEX is not able to develop local shale gas resources quickly enough to meet growing demand for electricity from the country’s booming industrial sector. The short-term solution has been to increase imports from the US while natural gas prices in the US are low. Further increases in import volumes ran into problems this year because of capacity constraints on the Mexican side.

To increase the flow of gas to meet demand inside Mexico and to ramp up import capacity across the border, the Mexican government has embarked on an ambitious program to build new pipelines costing as much as $8B. A mixture of public and private companies is involved in building and operating this pipeline infrastructure – much of it dedicated to supplying power plants. The expansion projects center on two “backbone” pipelines – one in the southeast and the other in the northeast of the country – both of which involve new infrastructure to deliver gas from the US side.  PEMEX is using a Cayman Islands based subsidiary MGI to handle the US projects to avoid red tape and speed things up. In addition to the backbone projects there are a number of smaller connection projects inside Mexico that provide service to power plants. Inside Mexico the bidding for these projects is being handled by PEMEX as well as the state power company Comisión Federal de Electricidad (CFE). Contracts not yet awarded are currently tied up in political stalemate while the new Mexican President Enrique Pena Nieto (who took office on December 1, 2012) decides on energy policy priorities.

What follows is a description of the expansion plans and the latest completion estimates. The map below shows the major infrastructure projects as presented by PEMEX in September 2012. The red line is the US/Mexico border. The green lines are PEMEX sponsored pipeline projects that are underway. The green star shapes are where border capacity will be increased. The grey dotted lines are new pipeline projects not sponsored directly by PEMEX. The blue lines are the existing national pipeline system.

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