Infraestructura Energética Nova (IEnova) reported growth in volumes and revenue from its natural gas business in Mexico during the first quarter and expects the trend to continue, management said during an earnings call last week.
CEO Tania Ortiz Mena told analysts that the Energía Costa Azul (ECA) liquefied natural gas (LNG) export project in Baja California state remains “our main area of focus,” and that, “we continue to see opportunity for expansion to feed new offtakers along our natural gas pipelines…”
Sanctioned in late 2020, ECA is on track to be the first LNG export terminal on the west coast of North America, with first production expected in late 2024.
IEnova, the Mexico unit of San Diego, California-based Sempra Energy, has more than 2,900 kilometers (1,801 miles) of natural gas pipelines in operation and about 200 kilometers (124 miles) under construction in Mexico.
The pipelines are part of a massive buildout anchored by state power utility Comisión Federal de Electricidad (CFE) to secure natural gas supply from the United States amid declining production by state-owned Petróleos Mexicanos (Pemex).
U.S. natural gas exports to Mexico hit a record single-day high of 7.1 Bcf/d on April 14.
Ortiz indicated it is still too early to say whether a recent controversial reform to Mexico’s hydrocarbons law will impact IEnova’s activities in Mexico. The law gives the state greater control over granting and revoking permits in the oil, gas and petrochemicals business.
Ortiz said since “those provisions are very general and, of course, we are always in full compliance with all of our permit obligations, I think we need to look at the secondary laws that will regulate those activities in detail to really understand what the impact may be.”
Although the nationalist energy policies of Mexican President Andrés Manuel López Obrador have caused consternation among investors, Ortiz offered a different perspective. She said in the energy sector, “you need to keep your sight on the fundamentals and on the long-term, and Mexico continues to need energy infrastructure to be able to supply its energy needs, and it will continue to require private investment to meet those needs.”
She added, “We are going through some important changes in the regulatory and legal framework [in] the sector. So we need to be careful as to how we evaluate those changes and continue to find ways to collaborate with the current administration to continue developing projects.”
Sempra’s Mexico business has spanned multiple governments and regulatory changes.
IEnova was the first private company to be awarded a natural gas distribution contract through a public auction following a 1995 reform partially liberalizing Mexico’s energy sector. It built the first liquefied natural gas (LNG) import terminal on the west coast of North America.
IEnova also jointly developed the 2.6 Bcf/d Sur de Texas-Tuxpan subsea pipeline connecting U.S. gas supply to various demand points in Mexico.
Despite the uncertainty around recent regulatory changes, Ortiz said, “we continue to believe that there will be…space to develop new projects.” IEnova will continue to “work hand-in-hand with CFE and Cenagas, particularly to try to develop new projects together.”
Cenagas is the state-owned operator of Mexico’s Sistrangas national pipeline grid, which interconnects with privately owned pipelines such as those developed by IEnova.
Ortiz said IEnova is “working very closely” with CFE to ensure gas supply for temporary power plants on the Baja California peninsula for the summer. “By the way, we did the same during the February Texas storms, where we supported CFE to ensure that they had appropriate gas supply,” she said. “So it’s…very, very close collaboration, same thing with Cenagas.”
IEnova reported net profit of $110.5 million (8 cents/share) for the quarter, versus $46.3 million (3 cents) in the first quarter of 2020. Management attributed the increase mainly to noncash exchange rate effects and lower operating expenses.
Revenue from the natural gas segment rose year/year to $260 million from $199 million, while total revenue grew to $365.6 million from $313.2 million. The increase was mainly related to higher price and volume of natural gas sold, as well as higher distribution rates and volume, offset by lower results at the Termoeléctrica de Mexicali power plant, management said.
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