The global oil price crash has not diminished Mexico's thirst for investment in energy infrastructure, particularly natural gas projects, according to San Diego-based Sempra Energy's top executives, who are all-in south of the border through a Mexican-based subsidiary.
Having completed a successful $600 million initial public offering and the first private energy company listed on the Mexican Stock Exchange, Sempra's IEnova is progressing on three ongoing pipeline projects and gearing up to bid on four other projects slated to become available by the end of May.
CEO Debra Reed and President Mark Snell elaborated on Sempra's plans to stay active in Mexico with its influx of potential outside energy investment as part of the national energy reforms instituted by the Mexican government last year (see Daily GPI, Aug. 7, 2014). The bidding process on projects carried out by the Mexican energy agencies is a "solid, fair process," according to Reed.
She said the bids are solicited with a set capacity for each project, but bidders are increasingly looking beyond that capacity and offering estimates for future growth. "That is what we are seeing from bidders now; they are looking not just at the first contract, but also what can be done to grow that," Reed said.
Snell called the bidding process "quite good," but increasingly it will most likely be expanded to have bidders anticipate what the future market growth should be. "All of these will be open-access pipelines, and as such, they eventually will attract other customers, and bidders have to figure that into the net present value calculation for the project's cash flow stream.
"What we have seen is that despite, and maybe because of, the oil price drop, the need for outside investment in Mexico continues to grow, there seems to be no reluctance on the part of CFE [Comision Federal de Electricidad] and Pemex [Petroleos Mexicanos] to get moving on some of these projects because they are critically needed to deliver gas into Mexico."
During an earnings conference call last Thursday, Reed described IEnova's progress on three Mexican pipeline projects in which the Sempra company was a winning bidder. IEnova is generating earnings on sections of both the Sonora Pipeline in the western south of Arizona and the Los Ramones Pipeline in the northeast part of Mexico running south of Texas. Both placed in service last year. "Combined, these two pipelines provide more than 3 Bcf/d of import capacity to Mexico.
IEnova also won the first bid from CFE as part of Mexico's five-year infrastructure plan, which is calling for four more separate projects to be bid on in March and May, Reed said. "The associated capital investment is $300 million, and the pipeline should be in service to supply CFE gas-fired power plants in 2017 under a 25-year, dollar-denominated take-or-pay contract, she said.
CFE has signaled that it has four other pipeline projects worth an estimated $1.8 billion in investment. In response to specific questions, Reed said Sempra would like to win as many of the bids as there are projects with attractive returns. "It is not how many we get, it is how profitable they are," she said.
In response to another question on whether Sempra would partner on some future Mexican projects, Reed said Sempra is always considering partners, but those partners need to bring more than just money to the table. "We want to make sure that both partners bring something to the table," she said, adding that it has to be more than just more capital.
"We feel we have great opportunities in Mexico to raise capital, but we also would like partners that would bring something strategic to the table that would make Sempra more competitive."