Mexico is moving forward with plans to reconfigure the Cempoala compression plant in the southern state of Veracruz, despite the cancellation of the original contract signed last year, according to pipeline operator Centro de Control del Gas Natural (Cenagas).

Following press reports that the Cempoala compression plant reconfiguration project would be terminated, Cenagas on Tuesday said the undertaking is of “vital importance for the current administration” and clarified that the cancellation of the original engineering contract would not upend the facility’s planned overhaul.

In August, a consortium group led by Mexico-based Taylor Servicios Tecnicos SA de CV won an engineering contract through a Cenagas-sponsored tender process to reconfigure the compressor plant for $38 million. The contract entailed procurement, installation and integration of two turbo-compressors and a regulation system at Cempoala, as well as an upgrade to the station’s existing equipment and infrastructure. The project was scheduled to conclude by the end of November.

According to Cenagas, which cited director Elvira Daniel, the original contract was cancelled as it was seen as overpriced and wasn’t in the best interest of the country. “There was a 34-29% overcharge for the acquisition of the compressors,” Cenegas said, referring to the original contract terms. “That meant an excess charge of 140 million pesos [$7.3 million] for the country.” 

The Cempoala compressor station is considered to be of utmost importance to supplying natural gas to the Yucatan Peninsula, which often suffers from shortages and power outages, particularly during peak summer months. Once completed, the reconfiguration would allow the 1.4 Bcf/d compressor station to move gas south through central Mexico and toward the southeast, in the reverse direction of the current flow on that section of the Sistrangas, Mexico’s main gas transmission network.

In February, the first part of the plant’s reconfiguration was completed to allow gas to flow from the north to the south, about seven months ahead of schedule, according to Cenagas. The plant has had “optimal conditions for the compression of gas since February,” Cenagas said.

To complete the second phase of the reconfiguration, Mexico will purchase the turbo compressors from Solar Turbines, which participated in the original tender for the project. The compressors represent 72-74% of the total value of the contract, according to Cenagas.

The contract for the remaining construction work, installation and integration of the turbines would be awarded through a bidding process and overseen by Cenagas, the Energy Ministry and other government agencies, to assure transparency and the best conditions available to complete the project.

Once in operation, the Cempoala project is expected to take advantage of an influx of imported gas from the Sur de Texas-Tuxpan marine pipeline, which carries gas from Texas. The pipeline is now due online at the end of June.

The 2.6 Bcf/d subsea pipeline extends from South Texas and terminates at the port of Tuxpan in Veracruz, where it would link to a 500 MMcf/d interconnection to Mexico’s Sistrangas pipeline system.

Analysts have been critical of the government’s cancellation of tender processes for important oil and gas contracts in Mexico, including for the Dos Bocas refinery in Tabasco state.

“It is confusing that the announcement of the cancellation of the original contract was only made public by Cenagas following news reports and not when the decision was made,” said energy analyst Rosanety Barrios, who worked previously at Mexico’s Energy Ministry. “The good news is that it is clear that Cenagas considers this project as fundamental and that southeast Mexico will not be left without the supply of natural gas.”