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
"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
"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