Mexico's Southeast Gateway Pipeline clears FID
Canada's TC Energy and Mexico's state-owned utility CFE on August 4 sanctioned the 1.3bn ft3/d Southeast Gateway Pipeline, a 715-km offshore pipeline that will bring gas into the coastal communities of Tabasca and Veracruz.
Gas demand in the two districts of Mexico's central and southeast region will be served by eastern shore gas fields along the Gulf of Mexico. The $4.5bn investment estimate includes over 70% fixed cost pricing, with additional expenditures above and beyond that provided for under a cost sharing agreement entered into by TC Energy and CFE.
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TC Energy said: "We anticipate the [Mexico] project to deliver a multiple of approximately seven times comparable EBITDA, supporting an increase to our 2021-2026 comparable EBITDA CAGR to 6%, while also being accretive to comparable per share metrics."
Southeast Gateway Pipeline will originate onshore in Tuxpan, Veracruz. It will then disembark offshore before making landfall at Coatzacoalcos, Veracruz and Dos Bocas, Tabasco. The project is expected to launch by mid-2025, with CFE initially owning a 15% equity stake.
CFE's national shareholding will increase to 35% once the pipeline's operating contract lapses in 2055 and after TC Energy recovers a "full return on and of capital". This equity is supposed to reflect the 49% net value of Southeast Gateway funded by the Mexican utility, in addition to 15% of the value of other local distributions assets.
The local distribution network is managed by a subsidiary called Transportadora de Gas Natural de la Huasteca (TGNH), a joint venture between TC Energy and CFE. Other assets in the TGNH portfolio include the Tamazunchale, Tula-Villa de Reyes (TVDL) and Tuxpan-Tula (TXTL) pipelines. All three routes are covered by a single US dollar-demoninated transportation service agreement that ends 2055.
TC Energy and CFE have also agreed to end international arbitration cases related to the TXTL and TVDR projects and, subject to a final investment decision, anticipated in Q4 2022, complete the TXTL pipeline.
TC Energy believes the Southern Gateway FID will further its North American capital expenditure strategy, which has now allocated $33bn in funding to "high-quality" energy infrastructure projects. The deal comes amid a spat over the NAFTA trade agreement between Mexico, the US and Canada.
Mexico's government said last month it would hold discussions with its two partners over criticism that its energy policies violate the agreement. Mexico's leftist president Andres Manuel Lopez Obrador has vowed to pump more cash into state-owned energy players, including CFE and state oil company Pemex. US trade officials see that move as contrary to the free market NAFTA principles, particularly as it will undermine private US companies expanding south of the border.