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El Paso Natural Gas Expanding into Mexico

El Paso Natural Gas Co. (EPNG), which pipes natural gas to western markets, has secured two agreements to expand service into Mexico for growing power generation projects, El Paso Corp. pipeline chief Jim Yardley said Thursday.

Two long-term agreements would supply gas to two facilities in the state of Sonora.

"We and most consultants expect gas exports to double over the next several years as Mexico turns to natural gas power generation," said Yardley. "EPNG is particularly well positioned for this business...Now it's the most challenged, but we see tangible signs of improvement long term."

The two agreements "are the first of many that may serve Mexico." They also indicate an improving economy, Yardley told analysts.

"Importantly, we are seeing signs of increased throughput in the Southwest and signs of an economic recovery there."

One of EPNG's agreements, with MGI Supply Ltd., a subsidiary of Petroleos Mexicanos' Pemex Gas, is to expand the Willcox lateral and provide 95,000 Dth/d of gas transportation. The second agreement is to supply 90,000 Dth/d to Mexicana de Cobre S.A. de C.V., a subsidiary of Grupo Mexico, Mexico's largest mining company and one of the world's largest copper producers.

The first open season had offered up to 200,000 Dth/d of existing capacity held by EPNG on its south mainline, extending from the Waha Hub in West Texas to EPNG's Willcox compressor station in Cochise County, AZ. The second offered 185,000 Dth/d of proposed additional capacity from the Willcox station to two delivery points, also in Cochise County, at the U.S.-Mexico border.

Expansion of the Willcox lateral, anchored by 15-year contractual commitments, would use existing facilities at the Willcox compressor station after some pipe and compression modifications are undertaken. The project, estimated to cost about $18 million, is expected to generate more than $30 million of annual revenues when fully in service, Yardley said.

Pending Federal Energy Regulatory Commission approval, the project is scheduled to be in service by April 1, 2013.

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