MEXICO CITY -- Never mind Mexico's oil overhaul. These days, the action is in natural gas.
Since last year, when new laws made it easier for foreign companies to export gas to Mexico, there's been more than $10 billion of planned or completed pipeline investments announced by companies such as Dallas-based Energy Transfer Partners LP. Last week, Juno Beach, Fla.-based NextEra Energy Partners LP agreed to a $2.1 billion acquisition of closely-held NET Midstream, owner of seven pipelines including a 120-mile stretch that runs from Texas to the Mexican border.
Tumbling crude prices have dampened prospects that the Mexican oil-drilling laws adopted last year will spur an investment boom. Instead, it's the surge in gas-pipeline construction that's attracting foreign capital, expanding the market for U.S. gas producers and meeting growing demand from Mexican manufacturers and power plants.
The pipeline construction "is similar to building a first-class highway system," Glenn Pinkerton, a partner at Sidley Austin LLP who has worked on Latin American energy financing and infrastructure projects, said in an interview.
Just last week, Infraestructura Energetica Nova, a unit of San Diego-based Sempra Energy known as Ienova, agreed to pay $1.32 billion for a 50 percent stake in Gasoductos de Chihuahua, which operates a 73-mile pipeline between the northern states of Nuevo Leon and Tamaulipas.
Kinder Morgan Inc., the largest U.S. pipeline operator, is doubling the size of its U.S.-Mexico pipeline, while Tulsa-based Oneok Partners LP said it would spend as much as $100 million on an expansion to Mexico.
The past year's drop in crude prices by more than half has dimmed private oil producers' appetite for Mexico, which was supposed to draw an estimated $62.5 billion of energy investments through 2018. In an oil-rights auction last month, the first in the nation's history, only two of 14 drilling blocks drew sufficient bids to win a contract.
With gas, there's been less hesitation.
"You see points on the board a lot quicker in pipeline development than in the oil and gas sector," Jeremy Martin, an oil specialist at the Institute of the Americas in La Jolla, Calif., said.
U.S. gas exports to Mexico totaled a near-record 70.9 billion cubic feet in April, up 25 percent from a year earlier, according to the U.S. Energy Department. Exports are forecast to reach about 5 billion cubic feet per day by 2020, according to Bloomberg New Energy Finance. That works out to about 150 billion cubic feet a month.
Some of the additional gas demand comes from a push by Mexico to cut dependence on fuel oil for electricity production.
In January, Energy Transfer Partners, which operates more than 62,000 miles of gas pipelines, won two construction contracts valued at a combined $1.36 billion as part of a consortium with Coral Gables, Fla.-based MasTec Inc. and Mexican billionaire Carlos Slim's Carso Energy SA. The projects will connect Texas with northern Mexico.
Sempra's Ienova will consider additional investments as it digests the latest pipeline purchase, according to Chief Executive Officer Carlos Ruiz. The company will now control all of the Los Ramones I project, which carries gas from southern Texas to the northern Mexican state of Nuevo Leon.
"This doesn't change at all our appetite for new pipelines," Ruiz told reporters on a conference call.
In March, BlackRock Inc., the largest U.S. money manager, and First Reserve Corp., a Greenwich, Conn.-based investment fund, paid $900 million for a 45 percent stake in the Los Ramones II project. That 460-mile pipeline will run from Nuevo Leon to Guanajuato state. Armando Senra, head of Latin America and Iberia at BlackRock, said the company is "excited to grow our footprint in the country."
Comision Federal de Electricidad, a government-owned utility that oversees pipeline construction, has requested bids on 12 gas projects totaling $8.7 billion, to be awarded through next year. The government's goal is to increase the pipeline network by 75 percent by 2018 and triple total gas supplies to 7 billion cubic feet a day by 2028.
And there's plenty of gas north of the border. While Mexican gas production has slid about 16 percent since 2008, U.S. output has risen 44 percent since 2008. The Eagle Ford Shale formation, the top U.S. gas field by proven reserves, is in South Texas, not too far away.
"Natural gas demand in Mexico has been growing substantially over the last five years," NextEra Energy Chief Financial Officer Moray Dewhurst told investors on a conference call Aug. 3. "At the same time, Mexico-based natural gas supply has been declining, which we believe increases Mexico's need for U.S. gas imports."
Jim Polson, Michael Lawn, Rita Nazareth and Carolina Wilson of Bloomberg News contributed to this report.
SundayMonday Business on 08/09/2015