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Mexico to Build Eagle Ford Pipeline

$8 Billion Natural Gas Pipeline Expansion

Written by Brianna Panzica
Posted August 20, 2012 at 4:33PM

The United States' southern neighbor is interested in profiting off the shale gas boom.

The Mexican border runs close to Texas' Eagle Ford shale formation, one of the most profitable in the U.S.

It has roughly 250 rigs and an average production rate of between 300 and 600 barrels of oil equivalent per well per day.

It even extends into Mexico, though little exploration has been done across the border.

Instead, Mexico has been importing natural gas from the United States. In 2010, it imported 500 billion cubic feet from the U.S. alone.

But it wants to do more.

The nation's energy officials are planning to expand its existing 5,500 mile pipeline system, a project worth roughly $8 billion.

From Chron:

“Mexico has a unique opportunity, we have access to the world's cheapest gas,” Mexican Energy minister Jordy Herrera said of the U.S. supply in announcing the new pipeline plans earlier this year. “This is competitiveness for the industry of our country.”

In October, the construction will begin as U.S. and Mexican companies receive permits for a $3 billion expansion of the pipeline that begins right below the border on the Rio Grande.

The existing pipeline system, Herrera says, is not nearly expansive enough to support the nation's energy needs and that of its growing cities. It needs more natural gas in more areas, and for that it needs more pipeline.

And American company Kinder Morgan (NYSE: KMI) is eager to get involved.

Kinder Morgan has planned an expansion of its own pipeline in Tucson to Sasabe, Arizona – located on the Mexican border – where it will connect to a 600-mile Mexican pipeline duct planned to run all the way to Mazatlan, a Pacific port city.

Kinder Morgan will need approval from the U.S. for its pipeline expansion, but if passed, this pipeline will begin carrying 160 million cubic feet per day into Mexico.

From Chron:

“Kinder Morgan continually looks for ways to optimize its existing pipeline system and expand deliverability,” the company said in a statement Friday. “In Mexico, there is a growing need for additional supplies.”

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And Mexico's petroleum monopoly, Petroleos Mexicanos (Pemex), has also planned a duct to extend from the Agua Dulce hub near Corpus Christi, Texas to the Mexican border, where it will connect to a 700 mile Los Ramones pipeline that will run to Aguascalientes.

Both U.S. projects, Pemex says, will be funded in part through a Cayman Islands subsidiary.

As a close neighbor to the Eagle Ford shale, Mexico does have natural gas of its own. In fact, it's been reported that Mexico's shale gas reserves are the fourth-largest in the world.

And Enrique Peña Nieto, who will soon take the presidency, wants to lead the nation to explore this potential with the help of the United States.

But beginning September 1, the new Congress will engage in talks about constitutional changes, leaving the potential for this sort of large-scale exploration and development uncertain.

In the meantime, Mexico will continue to import from the Eagle Ford output, a rate that will likely continue to grow as this pipeline expansion begins and as Eagle Ford production continues to increase.

That's all for now,

Brianna Panzica

follow basic@brianna_panzica on Twitter

Energy & Capital's modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends. For more on Brianna, see her editor's page.

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