ONEOK JV To Pipe Natural Gas From Permian To Mexico’s Doorstep

ONEOK Partners LP (NYSE: OKS) has entered a 50/50 joint venture (JV) with a Mexico City-based natural gas infrastructure company to construct a pipeline that would transport natural gas from the Permian Basin in West Texas to Mexico.

The $450 million to $500 million Roadrunner Gas Transmission Pipeline will be built by MLP ONEOK in partnership with a subsidiary of Mexico midstream company Fermaca Infrastructure B.V.

Roadrunner will extend from ONEOK’s WesTex Transmission natural gas pipeline system (OWT) at Coyanosa, Texas, west to a connection at the U.S./Mexico border near San Elizario, Texas. There, it will connect with Fermaca’s Tarahumara Gas Pipeline which owns and operates the Chihuahua Corridor pipeline and offers another gas import location in Mexico.

“We are pleased to partner with Fermaca on this strategic pipeline project and about the opportunity to add to our extensive 36,000-mile integrated network of natural gas and natural gas liquids pipelines,” said Terry K. Spencer, president and CEO.

The project will be constructed in phases, including about 200 miles of new, 30-inch diameter pipeline designed to transport up to 640 million cubic feet per day (MMcf/d) of natural gas and up to 570 MMcf/d to Mexico's growing markets.

“We see Roadrunner as a gateway asset that will connect Mexico’s rapidly growing natural gas markets with U.S. producers in the developing Permian Basin,” Spencer said. “The pipeline will connect with ONEOK Partners’ extensive existing natural gas pipeline and storage infrastructure in Texas and create a platform for future cross-border development opportunities.”

ONEOK’s OWT assets consist of a 2,200-mile Texas intrastate pipeline system connected to natural gas producing areas in the Texas Panhandle, Waha Hub and Permian Basin. It transports natural gas between Midcontinent and Waha pipelines.

The JV will provide markets in Mexico access to upstream supply basins in West Texas and the Midcontinent, Spencer said.

Firm take-or-pay agreements with 25-year terms for the initial design capacity have been executed with the Comision Federal de Electricidad (CFE), Mexico’s national electric utility and a subsidiary of Fermaca, said Mark Reichman, director in research for MLPs, Simmons & Co. International.

“This is a first-class project for OKS given the pipeline will connect with and leverage the partnership’s existing natural gas pipeline and storage infrastructure and could lead to greater opportunities” across the border, he said.

In the past four years, U.S. natural gas exports to Mexico by pipeline have doubled to 2 Bcf/d in 2014 from less than 1 Bcf/d in 2010, according to the U.S. Energy Information Administration (EIA).

Exports to Mexico are projected to double to 3.8 Bcf/d by 2018, according to Mexico’s national energy ministry.

In 2015, ONEOK’s natural gas pipelines segment is expected to contribute about 18% of the partnership’s operating income. The project introduces a new avenue of growth and highlights ONEOK’s efforts to pursue opportunities across all segments of its business, he said

The project will be built in three phases.

Fermaca, a gas infrastructure player in Mexico, operates pipelines capable of transporting 1.2 Bcf/d or about 20% of Mexico’s natural gas supply.

Manuel Calvillo Alvarez, Fermaca’s COO and executive vice president, said the JV agreement with ONEOK is another key step in Fermaca’s plans to extend its network of gas pipelines across Mexico and into the U.S.

"A confluence of factors, including ambitious growth targets, a favorable regulatory and political framework and an abundance of planned projects mean that it is a great time to be investing in the build-out of natural gas infrastructure in and around Mexico,” Alvarez said. “In ONEOK, we have found a partner that recognizes the Mexican opportunity, and we really look forward to working with them.”

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.