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Mexico Opportunities Growing for NatGas, Power Infrastructure, Says Sempra Exec

What's not to like about the newly opened energy opportunities in Mexico? For Sempra Energy, the growth opportunities for natural gas today and power infrastructure tomorrow are expanding, the company said Tuesday.

In response to questions from analysts on a 2Q2015 earnings conference call, Sempra President Mark Snell presented a long-term view of growth possibilities in Mexico, including power generation projects and selling to other customers beyond the state-owned electricity and oil/gas business.

Sempra's 81%-owned Mexico-based subsidiary IEnova recently increased its holdings to nearly $5 billion by winning another pipeline project to serve a power generation plant (see Daily GPIJuly 15). It also has acquired a partnership interest of Petroleos Mexicanos (Pemex) in five pipelines and a storage facility giving it a larger platform from which to launch future developments.

"In Mexico, there are going to be generation opportunities, too," Snell said. "On the renewable side there will be opportunities that are quite good; on the gas-fired generation side, particularly regarding combined-cycle plants, there will be opportunities but they will come later. We'll have to wait and see.

"What Mexico is doing is really pretty smart, which is building out the gas network first and building a very active gas market that both Comision Federal de Electricidad (CFE) and the private sector will participate in to a great degree. So once they have a robust gas market and a good supply infrastructure network, then I think the Mexican officials will let out more opportunities for power plants."

Snell said he thinks Sempra will be an active bidder when those types of opportunities are available. "We are well positioned, and we have every intention to take advantage of that," he said.

Beyond the physical assets acquired in the most recent deal from Pemex, which includes three natural gas pipelines, an ethane pipeline, and liquid petroleum gas (LPG) pipeline and storage facilities, IEnova has operating, expansion and strategic marketing advantages, he said.

"On the cost side, with the 100% ownership we will have following close of the sale, we believe we can integrate those with the others pipes we already own and definitely get some efficiencies and synergies out of that in addition to the earning accretion we have forecast,” which is 5-10 cents/share.

Beyond that, he said all of the pipelines Sempra now owns are only marketed to the two state-owned customers that asked to have them built -- CFE or Pemex. "But these are open access pipelines, and we are now starting to market excess capacity to other users and we're seeing some success, so we do think there is additional upside to come from marketing additional capacity,” either existing infrastructure or through adding compression.

A third advantage comes in being in a strong position to do other future developments with Pemex that may end up with Sempra eventually acquiring the government-owned company's interest.

In pipelines alone, Snell said two biddings are scheduled this month and in September, and an additional five projects are planned before the end of this year. One of the two upcoming project bids is for a line that interconnects with the project IEnova won in July, he said. 

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