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IEnova Sees $2B Opportunity in Mexico’s Strategic Gas Storage Initiative

Mexico’s plan to create strategic inventories of natural gas could generate investment opportunities of up to $2 billion, according to Infraestructura Energetica Nova (IEnova).

Earlier this year the Mexican Energy Ministry (Sener) released an underground storage policy for the natural gas sector, establishing a strategic reserve mandate of 45 Bcf in working gas. These inventories, to be used only during supply emergencies, are required to be in place by 2026.

State-run pipeline operator Centro Nacional de Control del Gas Natural (Cenagas) is expected to launch an initial project tender for at least 10 Bcf later this year. Mexico currently lacks any underground gas storage facilities.

“That first bid will very likely be in northeast Mexico and probably utilize depleted oil wells, and the intent is for Cenagas to execute a long-term capacity contract on that facility,” said IEnova’s Tania Ortiz Mena during a first quarter conference call on Thursday. She is chief development officer of the company, which is the Mexican subsidiary of Sempra Energy.

IEnova is building 10 energy infrastructure projects in Mexico, representing a combined investment of nearly $2 billion. The projects under construction are four refined oil products terminals, five solar power plants and the 2.6 Bcf/d Sur de Texas-Tuxpan marine pipeline, developed as a joint venture with TransCanada Corp.

“All of them are moving forward according to schedule,” CFO Nelly Molina said. These construction projects are expected to begin contributing to the bottom line in 2019 and 2020.

Offshore construction on the $2.1 billion marine pipeline, which would transport gas from South Texas to the Mexican port of Tuxpan, is 80% complete, management said. The pipeline is expected to come in service by the end of the year.

The company also continues to push ahead with plans for a liquefied natural gas (LNG) export project at the Energia Costa Azul (ECA) regasification terminal on the coast of the Baja California peninsula.

“Technical work and commercial discussions are advancing,” Ortiz Mena said. “LNG importing countries in the Pacific Basin, as well as global LNG portfolio-holders, have indicated interest in the project, and we expect to make significant progress throughout the rest of the year.”

IEnova is still evaluating the scope of the ECA liquefaction project and expects to make a final investment decision by next year, management said.

The export terminal is expected to have a full capacity of 12 million metric tons/year (mmty), but may include an initial phase of 2-2.5 mmty. Investment for that initial phase would be between $1 billion and $1.5 billion, Ortiz Mena said.

IEnova is also working with a strategic partner to prepare for two power transmission project tenders, both scheduled for 3Q2018. Each project is worth an estimated $1 billion.

The company raised its 2018 capital expenditure guidance by $65 million to $795 million, on the announcement of two new projects -- a 125 MW solar plant in Sonora state and a marine terminal to store gasoline and diesel in Baja California.

Asked if the ongoing Mexican presidential elections had affected IEnova’s ability to close new deals in the liquids segment, CEO Carlos Ruiz Sacristan noted that business continued unabated.

“I think that what’s happening is exactly the opposite,” he said. “All of the large refiners that want to participate in the country are really moving in and trying to close deals with us and others, in order to build the infrastructure that is needed.”

IEnova reported 1Q2018 net income of $128 million (8 cents/share), down 12% from $145 million (9 cents) in the year-ago quarter.

“The decrease of $17 million was mainly due to exchange rate effects and higher financing costs, partially offset by higher margins in the gas segment,” management said.

In its natural gas business, IEnova’s pre-tax profit for the quarter was $143 million, up $8 million from $135 million in 1Q2017. The company owns and operates various natural gas pipelines in Mexico, including systems running through the northwest and along the country’s Pacific Coast.

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