TC Energy Corp. expects to phase into service its 886 MMcf/d Tula-Villa de Reyes pipeline in Mexico starting in the second quarter, management said during the fourth quarter earnings call.

The delayed pipeline is under construction and should enter full service at the end of the year, the company said.

Mexico’s energy ministry Sener has said the project’s completion depends upon the conclusion of archaeological work along the pipeline route. Once done, the 261-mile line would connect to TC’s operating Tamazunchale pipeline and to the Tuxpan-Tula pipeline, whose construction has been held up by a pending indigenous consultation process by Sener and is still years away from completion.

CEO Russell Girling said during the call the eastern section of the 178-mile, 886 MMcf/d Tuxpan-Tula pipeline “is now available for interruptible transportation service, although construction on the central segment continues to face delays.”

The middle segment is stalled because of a “lack of progress by Sener” on the consultation, according to TC, which said that the pipe would enter service two years after the consultations are concluded. However, no date was offered for when the consultations may conclude.

Earlier this year, Mexican President Andres Manuel Lopez Obrador said he would ask TC to seek an alternative route for the 56-mile middle section, as work has not begun “because the people won’t allow it and in this case, the people are right.”

TC has five pipelines currently generating revenue in Mexico, all of which are anchored by long-term contracts with Mexican state power utility Comisión Federal de Electricidad (CFE). Last year, CFE requested arbitration over several pipelines in the country, including all those in development by TC, arguing that the contracts in place were unfair to the state-controlled utility.

The contract on TC’s 2.6 Bcf/d Sur de Texas-Tuxpan marine pipeline was subsequently renegotiated, and the pipeline then went into service in September; discussions, however, over the transport service agreements on the Tuxpan-Tula and Tula-Villa de Reyes pipelines remain ongoing, and fixed capacity payments under force majeure clauses in the contracts on both pipelines have been suspended.

“Negotiations continue with the CFE and the government of Mexico and we would certainly characterize them as being constructive,” COO Francois Poirier said. “As far as the fundamentals, there is still favorable and compelling demand for energy and Mexico remains strong and is growing.

“I would say that successful negotiations on Sur de Texas serve as a good blueprint for how we're discussing advancing negotiations on Villa de Reyes and Tula. And I think...we would see a successful conclusion of those negotiations as demonstrating a willingness for further foreign capital investment and that would be a basis upon which we would look at future opportunities.”

Late last year, TC forecast Mexico pipeline gas imports from the United States would reach 7.2 Bcf/d by 2030 from 4.9 Bcf/d in 2019. The company expects gas demand from Mexico’s power sector in the same period to grow to 5.8 Bcf/d from 4.4 Bcf/d today, and it sees demand from industrial and other segments rising to 4.7 Bcf/d from 3.6 Bcf/d.

TC reported net income of C$1.1 billion (C$1.18/share) for the fourth quarter, up from C$970 million (C$1.03) in the similar 2019 period.