Mexico resolves dispute on three pipelines to bring in natural gas from Texas

Fuel Fix:

Mexican President Andres Manuel Lopez-Obrador said his administration has reached a deal ending a $3 billion controversy over contracts for five natural gas pipelines that were built by three companies south of the border.

During a Tuesday morning press conference, Lopez-Obrador announced that Mexico's federal government had reached a deal on Monday night with Canadian pipeline operator TC Energy, a Mexican subsidiary of San Diego utility company Sempra Energy and Mexican construction firm Grupo Carso. Negotiations remain ongonig with Mexico City-based contractor Fermaca.

Natural gas for the pipelines will be sourced from the Eagle Ford Shale of South Texas and the Permian Basin of West Texas, providing a much-needed outlet for the record production that both regions have experienced over the past five years.

"We'd like to thank the companies for reaching an agreement that advances both natural interests and business interests," Lopez-Obrador said.

Seeking to undo $3 billion in payments and to dispute force majeure clauses on the pipeline contracts, Lopez-Obrador launched a public review of the projects and requested international arbitration proceedings.

Either idle or incomplete, the pipelines are not delivering gas, but the clauses allowed the companies to collect payments due to delays and circumstances beyond their control, which included various delays ranging from the weather and landowner issues to hostility from indigenous groups — and even alleged acts of extortion at the hands of local government officials.

Mexico consumes more than 8 billion cubic feet of natural gas per day, but only produces 2.6 billion cubic feet per day — meaning that the rest needs to be imported. During the press conference, Lopez-Obrador said the agreement with the companies will allow the Mexican government to save $4.5 billion long-term.

The agreement is result of a series of meetings with the companies. Mexican officials expect 63 percent of the natural gas from the seven pipeline projects will be used by government-owned power plants while the remaining 37 percent will be consumed by industrial customers.
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Mexico needs the gas and Texas has it in abundance in both the Permian Basin and the Eagle Ford.  Getting the pipelines working will also make it easier for the US companies to increase the production of oil much of which will also be exported to other countries.  It does highlight some of the problems in resolving disputes in Mexico.