Wahalajara commercial start possible for June, but outlook complex

• Full commercial start of system delayed
• Sources cite conflict between CFE, Fermaca, others
• CFE delays Manzanillo LNG tender

HOUSTON (ICIS)–The full commercial start of the so-called Wahalajara pipeline system now appears more likely to begin in June at the earliest amid a variety of complicating factors that could further frustrate gas market participants.

Sources said there is a conflict between state-run utility and anchor customer CFE and Mexican pipeline builder Fermaca that could be rooted in CFE’s possible desire to avoid its take-or-pay contract responsibilities. One market source said CFE had attempted to purchase gas to pack the system a few weeks ago but did not proceed simply citing “delays” as the reason.

CFE did not provide official comment on the linepack issue.

All physical construction for the Wahalajara system appears complete as Fermaca has posted information on its electronic bulletin board (EBB) indicating the final leg of the system, Villa de Reyes-Aguascalientes-Guadalajara, became operational on 31 March. No gas nominations, however, have been recorded on that EBB or for the La Laguna-Aguascalientes pipe upstream of it. One source also said they had been separately informed that all Wahalajara construction was complete.

A Fermaca spokeswoman previously denied the final leg of the system was having last minute right-of-way issues. The company did not respond to requests for comment on the delays or conflict with CFE.

Interconnection
Market sources said another complicating factor is Wahalajara’s interconnection with the national Sistrangas system. Sources said it was being obstructed by TSO CENAGAS, which could face more complicated operational adjustments afterward. CENAGAS did not immediately respond for official comment.

One former government official, however, said CFE could begin operating the rest of Wahalajara without the interconnection. “It seems they are delaying the Wahalajara issue so they don’t have to pay,” the source said, also citing nearby power plant delays and the utility’s unwillingness to open capacity on the system.

A current government official said CENAGAS has still not approved the way gas would be injected at the Zapotlanejo interconnect between the Sistrangas and Wahalajara. They said this was because Villa de Reyes-Aguascalientes-Guadalajara was not yet commercially operational.

Other factors
A different current government official said the area responsible for monitoring new gas pipeline completion progress at CFE had been eliminated during a restructuring. This means Wahalajara’s progress could likely be being overseen by CFEnergia, the company’s fuels trading arm, which has become more active in CFE’s infrastructure projects and seen by some as favoured by Manuel Bartlett, head of CFE. Sources have previously said CFEnergia has been looking into what they deemed unconventional ways of reaching potential gas customers that make it less likely to be optimising its pipeline capacity anytime soon.

Sources have also said CFE is already using as much heavily-discounted fuel oil as possible in power generation, making those plants’ offers competitive with natural gas-fired plants in the day-ahead power market and decreasing incentives to increase gas use. Sources have said CFE’s use of fuel oil over natural gas is incentivised by the administration’s resource nationalism and a deal brokered with Pemex a few months ago by energy ministry SENER. Market participants have also said they think the start of the pipeline system could be complicated by political factors. “You know [energy ministry head] Nahle and Bartlett don’t care for [the head of CENAGAS],” said the former government official “and the CRE belongs to Nahle.”

The former official said they believed CRE had not allowed CENAGAS to move forward with any of its proposals, something that might factor into the interconnection issue. “It’s a big disaster, and unfortunate, because CENAGAS would be a great ally for this administration and its objectives,” the former official said.

CFE extends deadline
In the LNG market, CFE has extended its buy tender for one cargo for its Manzanillo terminal, a terminal that would be phased out if Wahalajara were to become fully operational.

The tender was issued earlier this week and was due to close on 29 April. However, after the invitation was sent, CFE then extended the deadline by one day to 30 April. The tender requested for one cargo to be delivered between 14-15 May into Manzanillo. The terminal underpins supply for CFE’s two gas-fired power plants near Manzanillo.

CFE last purchased two spot cargoes for Manzanillo for April delivery last month. Both cargoes were awarded to portfolio seller Shell.

Given the current oversupply in the spot market, CFE will usually not tender more than one to two cargoes in advance. CFE has not covered any of its supply for Manzanillo on a term basis for multiple years, given an ongoing contractual dispute with Shell for contract supply from Peru LNG that saw volumes diverted starting in 2016.

Claudia Espinosa and Ruth Liao