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U.S., Mexican Firms Propose New Connection

U.S., Mexican Firms Propose New Connection

Sempra Energy, PG&E Corp. and Proxima Gas SA de CV announced last week a three-way effort to build and operate a $230 million, 212-mile natural gas pipeline to serve the rapidly growing energy loads in the southern end of California and the northern tip of Baja along the U.S.-Mexico border. The principal target market is new and existing electric generating plants and "other energy-intensive industries" in northern Baja, the sponsors said.

The proposed pipeline, which will require federal approvals on both sides of the border, is targeted to go into service in January 2003. It is envisioned as a 30-inch diameter pipeline carrying approximately 400 MMcf/d from an interconnection with El Paso Natural Gas at Ehrenberg, AZ, running through southeastern California and into northern Baja. (Sempra's Southern California Gas has an interconnect with El Paso outside of Ehrenberg..)

PG&E's National Energy Group will develop the 77-mile U.S. segment of the proposed pipeline, and Sempra International and Proxima Gas will build the 135-mile portion in Mexico, where they are already partnering on projects to develop gas distribution pipeline systems in several population centers in Mexico, including northern Baja. The deal between the two U.S. companies pretty much comes out to be 50-50, according to company officials. PG&E has a separate major proposed merchant generating plant outside of San Diego near the U.S.-Mexican border.

The proposed pipeline project combines PG&E's experience building and operating interstate gas pipelines, and the Sempra-Proxima experience in Mexico where they have won competition in recent years for several billions of dollars worth of business, including Sempra's 10-year $1 billion deal that closed in Aug. 1998 to supply up to 300 MMcf/d for new and converted electric generating plants south of Tijuana at Rosarito Beach in Baja (see NGI, Aug. 31, 1998).

Also last year, the Mexican federal government took steps to encourage foreign energy developers, removing a 4% import tariff on natural gas, providing new open access transportation rates and beginning steps to pursue privatization of its electric industry. With its past experience and geographical location along the border in San Diego, CA, Sempra has moved aggressively to develop projects south of the border.

California Gov. Gray Davis and Mexico's President Ernesto Zedillo announced the liberalization of Mexican energy rules a little over a year ago in ceremonies conducted in San Diego, some of which were held at Sempra Energy's corporate headquarters building. Only days before that ceremony, Mexico's energy regulatory commission (CRE) awarded a Sempra unit the license to build and operate a natural gas distribution system in the La Laguna-Durango geographic zone in north-central Mexico, similar to earlier bidding it won to construction distribution systems in Mexicali and Chihuahua (see NGI, May 31, 1999).

With growing concern about California's so-called "energy cul de sac," the extreme southern end of the state is facing both gas and electric transmission constraints in the face of projected electric demand growth in the 8-10% range annually. The sponsors said the proposed pipeline "will make it possible for Southern California to draw gas supplies from Mexico when needed, providing added reliability for the U.S. side of the border."

Air quality issues increasingly are affecting energy and industrial plant development on both sides of the border, and PG&E Generating's proposed 510 MWplant at Otay Mesa, 15 miles southeast of San Diego, has been stalled because of air emission considerations. The project sponsors are promoting the pipeline as a means of reducing emissions overall in the air basin along the California-Baja border.

"As industries convert to clean-burning natural gas they can reduce their air emissions by as much as 75 %," the pipeline backers said in prepared background information on the project.

A spokesperson for PG&E's national energy group said the project was completely separate at this time from the Otay Mesa power plant proposal. PG&E "in the next few weeks" will conduct an open season to assess the potential market directly off the proposed pipeline on the U.S. side.

Sandra McDonough, a PG&E national energy spokeswoman said that the proposed power plant will obtain gas for the plant through the local distribution utility, Sempra's San Diego Gas and Electric Co.

"We're going to hold an open season and see if there are viable potential markets to be served right off of the pipeline. If there are, we'll take a look at it. The open season should show us what's there. In terms of Sempra's pipeline system, it is up to them what might be served off of their pipes." Do they expect much competition for this proposal?

"The only one I know of is the El Paso one, and I am not familiar enough with the market they are going after. We're targeting the northern Mexico market, including generation and industrial growth around Mexicali and Tijuana. We think we have a good, cost-competitive project that can match up with any other alternative down there."

El Paso Natural a month earlier started an open season for its Yuma Lateral, a 94-mile pipeline in the range of $61 to $143 million, running from south of Yuma, AZ, westerly across parts of the Mexican state of Sonora and Northern Baja to around Mexicali, aiming to serve new gas-fired power plants in both Sonora and Baja (see NGI, May 15).

Richard Nemec, Los Angeles

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