El Paso Natural Gas (EPNG), owned by Kinder Morgan Energy Partners LP (NYSE:KMP) and Kinder Morgan Inc. (NYSE:KMI), has entered into a 25-year transportation precedent agreement in connection with plans to build a new pipeline to serve customers in Mexico. Terms call for EPNG, acting through its affiliate Sasabe Pipeline Co., to initially provide approximately 200 million cubic feet per day of firm transportation capacity via a new, 60-mile, 36-inch diameter lateral pipeline that would extend from EPNG’s existing south mainlines, near Tucson, Ariz., to the U.S.-Mexico border, terminating at Sasabe, Ariz. The proposed Sasabe Pipeline would interconnect via a new international border crossing with a 36-inch diameter natural gas pipeline to be built in Mexico.

According to Mark Kissel, president of Kinder Morgan’s Natural Gas Pipelines West Region, this natural gas infrastructure project would benefit both the United States and Mexico. “This agreement supports the ongoing development of the approximately $200 million Sasabe Lateral Pipeline, which would create new jobs in Arizona, and also provide a market for transporting abundant, low-priced U.S. gas production to Mexico. In addition, the project will help Mexico meet its environmental goals of converting existing fuel-oil-fired power generation plants to efficient, clean burning natural gas and also having natural gas supplies available for new plants in the future.”

In May 2012, the Mexican Comisión Federal de Electricidad (CFE) issued an international public invitation for companies to bid on constructing a new natural gas pipeline from the U.S.-Mexico border near Sasabe to Guaymas, Sonora, to supply existing fuel-oil-fired power generation plants that will be converted to natural gas, along with other new natural gas fired power generation plants that will be built during the next 15 years. The CFE invitation specified that a new U.S. pipeline would be required to terminate at Sasabe and connect existing natural gas transmission infrastructure in the United States to the planned pipeline in Mexico. Sempra International announced earlier that its Mexican business unit has been awarded two contracts by CFE “to construct, own and operate an approximately 500-mile (820-kilometers), $1 billion pipeline network connecting the Northwestern states of Sonora and Sinaloa.” The Sasabe Pipeline would interconnect with this recently awarded pipeline network.

The Sasabe Pipeline requires approval by the Federal Energy Regulatory Commission (FERC) and a presidential permit for an interconnection/border crossing at the international boundary at Sasabe. EPNG initiated the National Environmental Policy Act pre-filing process with the FERC in April 2012. It is anticipated that FERC certificate and presidential permit applications will be filed in early 2013. Subject to regulatory approvals, construction of the Sasabe Lateral would begin in the first quarter of 2014, with anticipated in-service in September 2014.