Canadian natural gas and utility company Atco Pipelines SA de CV said it has “reached a limit” on what it can do on its stalled 17-kilometer (10.5-mile) natural gas pipeline in Hidalgo state and the project is now in “Mexico’s hands to solve.”
The 505 MMcf/d pipeline known as Ramal Tula was awarded in 2014 by Mexico’s state-owned Comisión Federal de Electricidad (CFE), and it initially was expected to be completed in 2015.
Four years later, the pipeline remains incomplete. Following a series of legal injunctions and resistance from local communities and landowners, the final 1.5 kilometers have yet to be constructed.
“The project is quite simple really,” said Atco’s James Delano, vice president of structures and logistics for government and community relations in Mexico. “Construct a 17-kilometer natural gas pipeline from point A to point B,” he told NGI’s Mexico GPI.
“The difficulty that we have had, basically, is people don’t want us to continue to develop the project and they have found a way to stall the construction. They have found a way to do so through legal measures and have issued injunctions. As a result of these injunctions, we are stalled and can’t construct a centimeter more.”
Atco is one of several gas pipeline operators in Mexico facing dilemmas on pipeline construction. Currently, seven natural gas pipeline projects are stalled in the country, including projects involving Infraestructura Energética Nova (IEnova), TC Energy Corp., Fermaca and Grupo Carso.
The existing contracts between these companies and the CFE are in a tenuous state. During the first half of 2019, the administration of President Andrés Manuel López Obrador has insisted that pipeline contract terms with private companies are “abusive,” and it has called for them to be renegotiated.
Earlier this month, CFE CEO Manuel Bartlett said the state-owned company would seek international arbitration to resolve the disputes if the contracts couldn’t be renegotiated amicably.
The Mexican government said Tuesday talks between the CFE and private companies continue and both sides are engaged in “open and productive” dialogue with the objective of reaching a mutual understanding on the contracts.
Atco, Delano said, is continuing talks with CFE to settle the contract dispute.
“We have to find a solution,” he said. “We hope that CFE is open to dialogue to resolve the problem that has stalled the advance of the project.”
Atco’s Ramal Tula pipeline was stalled when local communities opposed construction. Originally four communities filed injunctions to impede the project, but two have since “agreed to work with us and try to settle things in a reasonable way,” Delano said.
Atco has met with members of the communities, obtained rights of passages from landowners and followed legal processes “to the letter,” he said.
Atco has also received support from lawmakers, government officials and ministry executives to encourage the project’s completion, but at this point “we’ve reached a limit really where there isn’t much else we can do,” Delano said.
“The solution to the problem is in Mexico’s hands, not only for our pipeline, but for all the other ones that are stalled as well,” he said. “I think this will come to a tipping point. The contracts in question complied with all the requisites and were signed by the CFE. There were international auctions and the contracts comply with industry standards anywhere in the world. So, how do they consider these contracts to be abusive?”
Atco has not received payment from the CFE for the pipeline, which is intended to transport gas to the 1,546 MWe Francisco Pérez Rios thermoelectric power plant near Tula. However, because the pipeline remains incomplete, the CFE must compensate by generating electricity with fuel oil at a cost up to four times higher than gas, Delano said.
“If you calculate the four years that our pipeline has been stalled and the amount of additional money that is being paid to burn fuel instead of natural gas, it’s a ton of money.”
Despite challenges with the pipeline project, Atco has developed other projects in Mexico, such as a hydroelectric and co-generation plant, and it plans to remain and invest in the country for the long-term, Delano said.
In a press conference early this month, Bartlett mentioned Atco and said the CFE seeks “friendly renegotiation” of the contract in question. For Atco, the expectation is to someday complete the long-delayed project.
“We currently have this project that is problematic for us and we are looking to resolve it,” Delano said. “That’s what we want, to be able to complete this project. We are looking for support from different sectors of the government to make that happen.”