Last week we received confirmation that Mexico’s Samalayuca – Sasabe and Wahalajara pipeline projects are delayed. As a result, we are reducing our forecast for 2019 U.S. pipeline exports to Mexico and Mexican LNG imports. While macro-level changes are notable, these delays will have a magnified impact on the Permian by delaying more than 1.1 Bcf/d of anticipated debottlenecking relief.
The Samalayuca – Sasabe project is officially delayed by the project developer to sometime in the second half of 2019. Prior to confirmation of the delay, we were modelling an in-service date for this month (December). While the delay has no material impact on total U.S. pipeline exports to Mexico, it does delay increases to Permian exports.
When complete, Samalayuca – Sasabe will be a 472 MMcf/d line built by Carso Energy that will connect Waha to northwestern Mexico. These markets are already served by the El Paso South Mainline (EPNG SML), which regularly hits constraints for westbound gas volumes. While the northwestern Mexico markets do have some demand growth, the main effect of Samalayuca – Sasabe is to displace EPNG supply to Mexico south through the Arizona border. Thus, Samalayuca – Sasabe will not move the needle on Total US Exports to Mexico but does enable increases in total Permian outflows by liberating capacity on the EPNG SML for Permian molecules to go to Desert Southwest/SoCal markets. Our gas export model was modelling increased exports of 297 MMcf/d starting this month (December) considering the in-service of Samalayuca – Sasabe. This increase in exports will now be delayed to July 2019.
The Wahalajara system is also confirmed by the project developer as delayed to May 2019. We were modelling an in-service date of March 2019, which itself was a recent change from earlier in-service dates as detailed in our blog posting from October 4. This delay affects our estimate for total US pipeline exports to Mexico – particularly those from the Permian – as well as by necessitating Mexico import greater volumes of LNG than previously forecast.
Wahalajara is a collection of three, Fermaca-built pipelines that will collectively connect Waha to central Mexican markets around Guadalajara and Villa de Reyes. The system will telescope down from 1.6 Bcf/d capacity on its northern line, El Encino – La Laguna (already in service but not flowing), to 1.3 Bcf/d on its central leg, La Laguna – Aguascalientes, down to 0.89 Bcf/d on its southern leg, Villa de Reyes – Aguascalientes – Guadalajara.
We expect Wahalajara will flow by pushing out Mexican LNG imports at Manzanillo, offsetting Mexican production declines, and serve some moderate demand growth. However, since our expectations for demand growth and Mexican production declines are both slower than in recent years, we anticipate some Wahalajara volumes will potentially push back some South Texas supplies into central Mexican markets.
Though there will be some pushback on South Texas exports, Wahalajara is expected to ultimately contribute to a net increase in total US pipeline exports to Mexico and Permian exports. Until then, though, Manzanillo will continue bringing in LNG cargoes and South Texas gas is needed to contribute to supply in central Mexico. With the delay to Samalayuca – Sasabe confirmed, we are increasing our forecast for Mexican LNG imports, particularly in March, April, and May.
During those same months we are reducing our forecast for total US pipeline exports to Mexico by as much as 320 MMcf/d in April relative to our previous forecast. More specifically, our Permian export model was showing an increase of Permian-to-Mexico flows of 836 MMcf/d by March; that will now be delayed to May (barring further delays).