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Natural Gas August 28, 2019 01:00:33 AM

Mexico Reaches Deal in Natural Gas Pipelines Controversy

Anil
Mathews
OilMonster Author
The renegotiated contracts allow for 8.2 billion cubic feet of natural gas per day to imported into Mexico.
Mexico Reaches Deal in Natural Gas Pipelines Controversy

SEATTLE (Oil Monster):  Mexican President Andres Manuel Lopez-Obrador said his administration has reached a deal ending a controversy over contracts for five natural gas pipelines that were built by three companies to carry natural gas south of the border from Texas.

The dispute centered around some $3 billion in payments that pipeline companies received from the Mexican government although they have yet to deliver any natural gas. The payments were made under force majeure clauses in the contracts, which allow the companies to collect the money if the projects were delayed by circumstance beyond their control. Those circumstances included weather, protests and even alleged acts of extortion by local government officials.

Seeking to undo $3 billion in payments and dispute force majeure clauses on the pipeline contracts, Lopez-Obrador launched a public review of the projects and requested international arbitration, which would have delayed the projects further. Ultimately, the government and the companies agreed to drop the legal action and renegotiated rates, which Lopez Obrador said would save Mexico $4.5 billion.

Mexico needs the natural gas. The country consumes more than 8 billion cubic feet of natural gas per day, but only produces 2.6 billion cubic feet per day. Natural gas for the pipelines will come 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.

A series of meetings this summer between the government and the Mexican subsidiary of Canadian pipeline operator TC Energy, a Mexican subsidiary of San Diego utility company Sempra Energy and Mexico City construction firm Grupo Carso ended with deals that were signed on Monday night.

The renegotiated contracts allow for 8.2 billion cubic feet of natural gas per day to imported into Mexico. Some 63 percent of that natural gas from the pipeline projects to be used by government-owned power plants while the remaining 37 percent will be consumed by industrial and commercial customers.

With most of its route underwater in the Gulf of Mexico, the pipeline will be used to move 2.6 billion cubic feet of natural gas per day from the Eagle Ford Shale of South Texas and the Agua Dulce Hub near Corpus Christi to the coastal state of Veracruz and then into the interior of Mexico.

Crews completed the underwater pipeline project last year, but have yet to flow natural gas through it because of issues completing other two other pipelines that would have moved the natural gas further into the interior of Mexico.

 Courtesy: www.houstonchronicle.com

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