Already agreed with the Federal Electricity Commission (CFE), TC Energy will build a gas pipeline between the Mexican ports of Tuxpan and Coatzacoalcos with an investment of 5 billion dollars, informed the Mexican government.
Roberto Velasco, head of the North American Unit of the Ministry of Foreign Affairs (SRE), also informed this Friday that the construction of the pipeline was agreed between TC Energy and the CFE.
Natural gas plays a key role in the global energy transition. It is a reliable, high-efficiency energy source that is displacing coal-fired power, while supporting the intermittency of renewable energy sources.
In particular, TC Energy’s 93,300-kilometer pipeline network supplies more than 25% of the daily demand for clean-burning natural gas in North America.
This pipeline network connects the growing supply in the continent’s most prolific basins to key markets in Canada, the United States and Mexico.
The company also operates one of the largest natural gas storage businesses on the continent, with 653 billion cubic feet of regulated and unregulated storage capacity.
For more than a decade, Mexico has been undergoing a major transition from fuel oil and diesel as the main energy sources for electricity generation to the use of natural gas.
As a result, new pipeline infrastructure has been and continues to be needed to meet the growing demand for natural gas.
The state-owned CFE is the counterparty to all of TC Energy’s existing pipelines in Mexico under long-term contracts, which are predominantly denominated in U.S. dollars.
These fixed-rate contracts are typically designed to recover the cost of service and provide a return on invested capital.
TC Energy’s pipelines in Mexico have approved tariffs, services and related fees for other potential users.
CFE initiated arbitration in June 2019 for the Tula and Villa de Reyes projects, disputing fixed capacity payments due to force majeure events.
The arbitration proceedings are currently suspended while management holds settlement talks with the CFE.
In 2021, TC Energy made progress in resolving the disputed contractual terms with the signing of a Memorandum of Understanding on July 30, 2021 outlining the main settlement principles.
For now, construction of Villa de Reyes is underway, but completion has been delayed due to Covid-19 contingency measures and difficulties in accessing land in some local communities.
Management is working closely with state and local governments to complete negotiations and gain access to land so that construction can be completed. The company expects to complete construction of Villa de Reyes in phases during 2022.