Carlos Slim’s Grupo Carso to bid in all four Mexican CFE pipeline tenders in 2015

Mexican conglomerate Grupo Carso plans to participate in all four tenders issued by state utility Comisión Federal de Electricidad (CFE) in 2015 for the construction of natural gas pipelines in northern Mexico, Carso told FC Gas Intelligence.

In the second half of 2015, the CFE will open the bids for four natural gas pipeline projects ranging between $100 million and $900 million each, for a total of about $1.8-2 billion investment.

CFE has announced multiple power infrastructure projects near Mexico's northern border with the United States that are part of the company's plan to boost natural gas imports from the US and help lower electricity prices in Mexico via cheaper inputs and more modern power infrastructure.

It is also considering tenders for the construction of several thermoelectric generators, the rehabilitation of a hydroelectric generator and the modernization of transmission lines.

Already active in the retail, industrial and infrastructure sectors, Grupo Carso has adapted its business portfolio to take advantage of new opportunities spawned by the liberalization of Mexico’s energy sector, which is expected to double the annual investment in the industry from the current $30 billion.

US natural gas exports to Mexico through pipelines crossing the international border in Texas, California and Arizona reached record 706 billion cubic feet in 2014 to meet increasing demand from new natural gas-fuelled power plants in Mexico. Source: US Energy Information Administration, based on US Department of Energy Office of Fossil Energy

At the end of 2014, the firm transferred P$8.5 billion ($550 million) of energy-related assets from its business units Condumex and Carso Infraestructura y Construcción (CICSA) into a new subsidiary, Carso Energy, which will become the main vehicle to participate in planned oil and energy reforms in Mexico.

The subsidiary will focus on oil (leasing of oil rigs and E&P) and electricity (construction and operation of gas pipelines, and power generation) investments. Carso Energy currently contributes 1% of Grupo Carso’s revenues, according to the conglomerate’s Q1 2015 financial results.

Grupo Carso has increased its expected annual capital expenditure in Carso Energy in 2015 from P$3.5 billion to P$4 billion, but this amount will largely depend on the success of its participation in Mexico’s energy reform and new business partnerships. 

“[In natural gas,] the idea is to be participating and be active mainly in the pipeline projects that the CFE is bidding,” said Norma Angelica Pina Garnica of Grupo Carso’s Investor Relations division. “[State oil and gas giant] Pemex recently also had a pipeline from the US called Ramones but sold it to private fund Blackrock. Pemex will not be as active with pipelines as the CFE.”

Carso estimates that between 2013 and 2018 the CFE would invest a minimum of $10 billion in new infrastructure development. Meanwhile, Pemex plans to become Mexico's second largest electricity generator by converting oil-fired power facilities to natural gas and investing in co-generation plants.

Grupo Carso also expects to participate in projects for co-generation plants and storage, and will scout opportunities for partnerships with Pemex for Round Zero E&P projects and with other players for Round One from July onwards, when Mexico kicks off its much-anticipated auction of oil blocks.

In the second half of the year, Carso Energy will associate with international companies to participate in onshore and offshore E&P bids. The company is currently in talks with several foreign companies, Garnica said.

Texas-Mexico pipelines
The 2015 tenders will not be Carso’s first foray into Mexico’s power infrastructure market. In January this year, a consortium led by Carso Energy in partnership with Energy Transfer Partners (ETP) (the constructor) and MasTec (the operator) won bids to construct and operate two gas pipelines from Waha, Texas to Presidio and San Elizario in Mexico.

The consortium bid $767 million for the Waha-Presidio pipeline and $596 million for the Waha-San Elizario pipeline.

The 230 km Waha-Presidio pipeline will transport 1,350 million cubic feet daily (mmcfd) and is expected to launch in March 2017. Construction of the 277 km Waha-San Elizario pipeline, which will transport 1,450 mmcfd, is expected to complete in January 2017.

The company is finalizing the agreements and formalizing the transport service contracts with the CFE for the two pipelines, and expects to start construction in the second half of 2015, Garnica said.

The CFE awards contracts based on an evaluation of the proposed construction price, overall cost, the financial structure of the bidders and the expected environmental impact of the projects.

Grupo Carso has locked up the financing for the Waha-Presidio and Waha-San Elizario projects with commercial banks via a long-term loan for 80% of the investment for 20 years. Once the pipelines are completed, Carso will start generating revenues from leasing the pipelines.

In the future, Carso Energy would form consortia when bidding for pipelines in the US. For projects in Mexico, it would construct with CICSA, Grupo Carso’s infrastructure arm.