The proposed rerouting of the 178-mile, 886 MMcf/d Tuxpan-Tula natural gas pipeline could ultimately help the project get completed, according to local experts.
Mexico President Andrés Manuel López Obrador said on Saturday he will not allow the pipeline to pass through hills in central Mexico considered sacred to local indigenous communities, and that his government will propose alternative routes to developer TC Energy Corp.
“Even if we have to pay…we will not accept these conditions,” the president told a gathering of indigenous communities in the town of Pahuatlán, Puebla state, adding that “the pipeline will not pass through the sacred hills.”
State power utility Comisión Federal de Electricidad (CFE) tendered the pipeline in order to supply its combined-cycle gas turbine fleet in Veracruz, Puebla and Hidalgo states, including the 642 MW Huexca plant.
Completion of the pipeline’s 56-mile middle section has been held up amid a pending indigenous consultation by energy ministry Sener.
Despite the president’s strong language, the declaration could very well spell good news for the pipeline, according to Mexico City-based energy consultant Gonzalo Monroy.
“They need it to be done,” Monroy told NGI’s Mexico GPI in reference to CFE, citing that the pipeline will allow CFE to displace costlier fuel oil with cheaper natural gas at its power plants in central Mexico. “I think that it was actually a very pragmatic decision by López Obrador, saying if they have to pay extra for the rerouting, so be it.”
Mayer Brown LLP’s José Valera expressed a similar viewpoint.
“It’s possible that a rerouting is properly warranted,” Valera said. “And sure, it could increase costs…but bottom line, it’s not necessarily, in the abstract, improper or undue on the part of a government to put a hold on a project like this, given this type of local opposition.”
The project’s completion date, however, remains to be seen. Monroy highlighted that, “for example, nobody knows what the new route is going to be,” nor how additional land rights, if necessary, will be secured.
TC Energy’s Francois Poirier, who oversees the company’s Mexico operations, said in November that TC expected the pipeline to enter service two years after the completion of the indigenous consultation.
The company did not immediately respond to a request for comment on Monday.
CFE is the pipeline’s anchor customer under a 25-year firm transport services agreement.
CFE and TC Energy have been in the process of renegotiating the terms of the contract, which López Obrador and CFE general director Manuel Bartlett Díaz have deemed “unfair.”
CFE successfully renegotiated the contract terms for the 2.6 Bcf/d Sur de Texas-Tuxpan marine pipeline, and for the 472 MMcf/d Samalayuca Sásabe pipeline.
TC Energy and Infraestructura Energética Nova (IEnova) jointly developed the marine pipeline, while billionaire Carlos Slim’s Grupo Carso is behind the Samalayuca project.
TC Energy said in its 3Q2019 earnings presentation that talks to reach similar agreements on the Tuxpan-Tula and Tula-Villa de Reyes projects were progressing, “with the expectation of reaching agreements before the end of 2019.” The companies have yet to announce such an agreement.