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Released May 18, 2015 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The recent completion of the $880 million Phase I of the Los Ramones gas pipeline, which will carry gas from the Eagle Ford Shale to Mexico, is the first of several such cross-border pipeline projects that seek to connect suppliers in the U.S. more closely with demand centers in Mexico. U.S. developers are scrambling to build Oil & Gas Pipelines to export hydrocarbons to meet Mexico's surging electric and industrial demand. Pipeline projects are being proposed that will draw on production from the Permian Basin and the Eagle Ford Shale formations, as well as other producing areas in the Southwestern U.S.
Industrial Info is tracking 59 active oil and gas pipeline projects in Mexico with a total investment value (TIV) of $7.85 billion. While Industrial Info does not expect all of these projects to kick off as scheduled, the number of proposed projects suggests a vibrant market for gas pipelines and related infrastructure in Mexico. The states of Chihuahua, Nuevo Leon, Tabasco and San Luis Potosi have a particularly large slate of proposed pipeline projects.
Click on the image at right to see the 10 Mexican states with the largest number of oil & gas pipeline projects.
Despite large reserves of natural gas and crude oil, Mexican energy production has been declining for several years. PEMEX, the Mexican national oil and gas monopoly, has long been criticized as inefficient and corrupt, as well as for not maintaining existing fields or developing new ones. Continued declines in production, coupled with forecasts of sizable increases in demand, caused the Mexican government to liberalize its energy monopolies and include foreign firms. For more on this trend, see the June 4, 2014, article - Will Security Concerns Undermine Mexican Oil & Gas Liberalization?, and the March 18, 2015, article - Mexican Electricity Liberalization: Promising Yet Perilous.
ONEOK Partners LP (NYSE:OKS) (Tulsa, Oklahoma), a unit of ONEOK Incorporated (NYSE:OKE) (Tulsa, Oklahoma), last month announced a 50:50 partnership with Fermaca Infrastructure B.V. (Mexico City, Mexico) to build a 200-mile pipeline that could transport up to 640 million cubic feet of gas per day (MMCF/d) from the Permian Basin in West Texas to Mexico. The Roadrunner Gas Transmission Pipeline, expected to cost between $450 million and $500 million to construct, will extend from ONEOK's WesTex Transmission natural gas pipeline system at Coyanosa, Texas, west to a new international border-crossing connection at the U.S. and Mexico border near San Elizario, Texas, where it will connect with Fermaca's Tarahumara Gas Pipeline.
The proposed Roadrunner pipeline is already fully subscribed on a take-or-pay basis: Offtake agreements have been executed with the Comisión Federal de Electricidad (CFE), Mexico's national electric utility, as well as a subsidiary of Fermaca. Up to 170 MMCF/d of gas will flow when Phase I of the project is completed, which is expected to be early next year, ONEOK projected. The second phase of the pipeline, expected to be brought online in early 2017, will boost transmission capacity to 570 MMCF/d. The third and final phase of the project is expected to be completed in 2019 and will increase available capacity on the pipeline to 640 MMcf/d.
"We are pleased to partner with Fermaca on this strategic pipeline project," said Terry K. Spencer, ONEOK Partners President and Chief Executive, on April 1 when announcing the project. "We see Roadrunner as a gateway asset that will connect Mexico's rapidly growing natural gas markets with U.S. producers in the developing Permian Basin. The pipeline will connect with ONEOK Partners' extensive existing natural gas pipeline and storage infrastructure in Texas, and create a platform for future cross-border development opportunities."
Roadrunner also will provide CFE and Mexican companies with access to upstream supply basins in West Texas and the Mid-Continent, which adds location and price diversity to their supply mix and helps back out fuel-oil use, Spencer added.
Two gas-hungry auto-manufacturing plants could be fueled by gas exported through Roadrunner. Toyota Motor Corporation (NYSE:TM) (Aichi, Japan) and Kia Motors Corporation (KRX:000270) (Seoul, South Korea) recently announced plans to build car-making plants in Mexico: Toyota's plant will be located in Guanajuato, and it plans to build up to 200,000 Corollas there per year when it begins operations in 2019. Kia's plant will be located in Monterrey and it is scheduled to begin operations in early 2016, according to reports from the San Antonio Business Journal.
Mexican affiliates of Ford Motor Company (NYSE:F) (Dearborn, Michigan), Audi AG (FRA:NSU) (Ingolstadt, Bavaria) and BMW AG (Ingolstadt, Bavaria) also plan to build billion-dollar automotive assembly lines in that country. Mexican affiliates of Nissan (Yokohama, Japan), Hyundai (Seoul, South Korea) and Volkswagen (Wolfsburg, Germany) also have billion-dollar auto-making plants on the drawing board.
No sooner had Phase I of the Los Ramones gas pipeline begun operating than two U.S. investment firms committed to building Phase II of that pipeline, in partnership with PEMEX. In a March 26 ceremony, BlackRock Incorporated (NYSE:BLK) (New York, New York) and First Reserve (Greenwich, Connecticut) committed to invest more than $4.6 billion in Phase II. That project is expected to bring Eagle Ford gas to cities and businesses throughout Mexico.
Phase II of Los Ramones will run for about 462 miles from Los Ramones, Nuevo Leon to the state of Guanajuato, where a number of maquiladoras (free trade zone factories) and automobile factories will use the natural gas as a clean source of power, the paper reported.
One of the proposed pipelines in Mexico that will transport gas from the U.S.-Mexican border into central Mexico is the Colombia-to-Escobedo Grassroot Natural Gas Pipeline, a 155-mile project that will bring gas from the border to a planned power plant in Escobedo, Nuevo Leon. Construction of that $300 million project is scheduled to take place later this year, and the pipeline is expected to be in service by mid-2017.
A second cross-border pipeline project is a 15-mile pipeline near El Paso that will link San Isidro, Texas, to Samalayuca, Chihuahua, to bring gas to another power plant. That project, dubbed San Isidro-Samalayuca, has a total investment value of about $60 million. Both Phase I and Phase II are scheduled to kick off construction this summer and be operating next summer.
"Mexico is a large market with strong demand growth for oil, gas and electricity," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "There's a lot of pent-up demand for the kinds of services provided by U.S. producers and developers. But there's also a high level of risk. The rewards and the risks are correlated, and both will be a function of exactly how Mexico liberalizes its energy markets. For U.S. firms not eager to blaze trails and live on the bleeding edge, being a fast follower should generate plenty of business."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Industrial Info is tracking 59 active oil and gas pipeline projects in Mexico with a total investment value (TIV) of $7.85 billion. While Industrial Info does not expect all of these projects to kick off as scheduled, the number of proposed projects suggests a vibrant market for gas pipelines and related infrastructure in Mexico. The states of Chihuahua, Nuevo Leon, Tabasco and San Luis Potosi have a particularly large slate of proposed pipeline projects.
Click on the image at right to see the 10 Mexican states with the largest number of oil & gas pipeline projects.Despite large reserves of natural gas and crude oil, Mexican energy production has been declining for several years. PEMEX, the Mexican national oil and gas monopoly, has long been criticized as inefficient and corrupt, as well as for not maintaining existing fields or developing new ones. Continued declines in production, coupled with forecasts of sizable increases in demand, caused the Mexican government to liberalize its energy monopolies and include foreign firms. For more on this trend, see the June 4, 2014, article - Will Security Concerns Undermine Mexican Oil & Gas Liberalization?, and the March 18, 2015, article - Mexican Electricity Liberalization: Promising Yet Perilous.
ONEOK Partners LP (NYSE:OKS) (Tulsa, Oklahoma), a unit of ONEOK Incorporated (NYSE:OKE) (Tulsa, Oklahoma), last month announced a 50:50 partnership with Fermaca Infrastructure B.V. (Mexico City, Mexico) to build a 200-mile pipeline that could transport up to 640 million cubic feet of gas per day (MMCF/d) from the Permian Basin in West Texas to Mexico. The Roadrunner Gas Transmission Pipeline, expected to cost between $450 million and $500 million to construct, will extend from ONEOK's WesTex Transmission natural gas pipeline system at Coyanosa, Texas, west to a new international border-crossing connection at the U.S. and Mexico border near San Elizario, Texas, where it will connect with Fermaca's Tarahumara Gas Pipeline.
The proposed Roadrunner pipeline is already fully subscribed on a take-or-pay basis: Offtake agreements have been executed with the Comisión Federal de Electricidad (CFE), Mexico's national electric utility, as well as a subsidiary of Fermaca. Up to 170 MMCF/d of gas will flow when Phase I of the project is completed, which is expected to be early next year, ONEOK projected. The second phase of the pipeline, expected to be brought online in early 2017, will boost transmission capacity to 570 MMCF/d. The third and final phase of the project is expected to be completed in 2019 and will increase available capacity on the pipeline to 640 MMcf/d.
"We are pleased to partner with Fermaca on this strategic pipeline project," said Terry K. Spencer, ONEOK Partners President and Chief Executive, on April 1 when announcing the project. "We see Roadrunner as a gateway asset that will connect Mexico's rapidly growing natural gas markets with U.S. producers in the developing Permian Basin. The pipeline will connect with ONEOK Partners' extensive existing natural gas pipeline and storage infrastructure in Texas, and create a platform for future cross-border development opportunities."
Roadrunner also will provide CFE and Mexican companies with access to upstream supply basins in West Texas and the Mid-Continent, which adds location and price diversity to their supply mix and helps back out fuel-oil use, Spencer added.
Two gas-hungry auto-manufacturing plants could be fueled by gas exported through Roadrunner. Toyota Motor Corporation (NYSE:TM) (Aichi, Japan) and Kia Motors Corporation (KRX:000270) (Seoul, South Korea) recently announced plans to build car-making plants in Mexico: Toyota's plant will be located in Guanajuato, and it plans to build up to 200,000 Corollas there per year when it begins operations in 2019. Kia's plant will be located in Monterrey and it is scheduled to begin operations in early 2016, according to reports from the San Antonio Business Journal.
Mexican affiliates of Ford Motor Company (NYSE:F) (Dearborn, Michigan), Audi AG (FRA:NSU) (Ingolstadt, Bavaria) and BMW AG (Ingolstadt, Bavaria) also plan to build billion-dollar automotive assembly lines in that country. Mexican affiliates of Nissan (Yokohama, Japan), Hyundai (Seoul, South Korea) and Volkswagen (Wolfsburg, Germany) also have billion-dollar auto-making plants on the drawing board.
No sooner had Phase I of the Los Ramones gas pipeline begun operating than two U.S. investment firms committed to building Phase II of that pipeline, in partnership with PEMEX. In a March 26 ceremony, BlackRock Incorporated (NYSE:BLK) (New York, New York) and First Reserve (Greenwich, Connecticut) committed to invest more than $4.6 billion in Phase II. That project is expected to bring Eagle Ford gas to cities and businesses throughout Mexico.
Phase II of Los Ramones will run for about 462 miles from Los Ramones, Nuevo Leon to the state of Guanajuato, where a number of maquiladoras (free trade zone factories) and automobile factories will use the natural gas as a clean source of power, the paper reported.
One of the proposed pipelines in Mexico that will transport gas from the U.S.-Mexican border into central Mexico is the Colombia-to-Escobedo Grassroot Natural Gas Pipeline, a 155-mile project that will bring gas from the border to a planned power plant in Escobedo, Nuevo Leon. Construction of that $300 million project is scheduled to take place later this year, and the pipeline is expected to be in service by mid-2017.
A second cross-border pipeline project is a 15-mile pipeline near El Paso that will link San Isidro, Texas, to Samalayuca, Chihuahua, to bring gas to another power plant. That project, dubbed San Isidro-Samalayuca, has a total investment value of about $60 million. Both Phase I and Phase II are scheduled to kick off construction this summer and be operating next summer.
"Mexico is a large market with strong demand growth for oil, gas and electricity," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "There's a lot of pent-up demand for the kinds of services provided by U.S. producers and developers. But there's also a high level of risk. The rewards and the risks are correlated, and both will be a function of exactly how Mexico liberalizes its energy markets. For U.S. firms not eager to blaze trails and live on the bleeding edge, being a fast follower should generate plenty of business."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
