• Company bested Sempra, TransCanada for pipeline projects
  • Plans calls for a $3.1 billion, 1,210-mile pipeline system

On the wall of Fermaca Enterprises’ Mexico City office a digital clock counts the seconds until its flagship pipeline project is completed, a symbol of its $3.1 billion bet on Mexico’s growing gas import market.

At $630 million, the El Encino-La Laguna pipeline in northern Mexico is 20 percent of Fermaca’s planned investment in a 1,947-kilometer (1,210-mile) network to bring natural gas from southwest Texas shale fields to Mexican power plants. Fermaca beat out larger competitors such as Sempra Energy and TransCanada Corp. to build the projects.

In several years, Fermaca’s network will be able to import 1.2 billion cubic feet per day from the U.S., about 15 percent of the nation’s expected gas imports, according to Chief Development Officer Raul Monteforte. The company is competing to replace costly fuel oil with cheaper and cleaner-burning natural gas.

“This will be a highly interconnected power hub for northern Mexico, effectively an energy corridor,” Monteforte said in an interview in Mexico City.

Fermaca, which is majority-owned by Swiss private equity firm Partners Group Holding AG, is helping to lead the expansion of Mexico’s gas pipeline network as a domestic production decline coincides with a drop in U.S. prices. Gas futures on the New York Mercantile Exchange settled at $1.639 per million British thermals units on March 3, the lowest close since 1999.

Mexico imported 1.8 billion cubic feet of natural gas per day in the first four months of the year, close to four times the volume a decade ago.

CFE Projects

Fermaca was awarded two major pipeline projects by Mexico’s state-owned utility Comision Federal de Electricidad, or CFE, in March, beating Calgary-based TransCanada in two auctions and Spain’s Enagas SA in one. Infraestructura Energetica Nova SAB, the Mexican arm of San Diego-based Sempra Energy known as Ienova, was disqualified from both auctions. Ienova was also barred from bidding in April on a gas pipeline project in central Mexico that went to TransCanada.

The pipelines will hook up with Fermaca’s Roadrunner Gas Transmission line, a joint venture with Tulsa, Oklahoma-based ONEOK Partners LP that will move gas from the Permian Basin in west Texas to Fermaca’s Tarahumara pipeline in Chihuahua state and the El Encino-La Laguna line in Mexico’s north-central corridor.

Half of the pipeline network’s $3.1 billion price tag has been deployed, according to Fermaca. The entire system is expected to be up and running by the end of 2017.

‘Positively Inclined’

“I am positively inclined on the whole sector, and the company specifically,” said Ray Zucaro, chief investment officer at Aventura, Florida-based RVX Asset Management. “These guys are already on the ground, they already have operations, they understand how to get things done.”

Zucaro said he used to hold Fermaca bonds but doesn’t anymore. The company in 2014 issued $550m of notes maturing in 2038. The securities’ yield has fallen 33 basis points this year to 6.64 percent, according to data compiled by Bloomberg.

Fermaca will not bid on a CFE project to build and operate a $3.1 billion sub-sea pipeline from south Texas to Tuxpan in Veracruz state, Monteforte said. It also backed out of plans to participate in Mexico’s first onshore and shallow-water oil auctions after it failed to find partners. It may still seek to participate in future oil auctions.

Fermaca is in talks with “three or four” companies to establish joint ventures in Mexico’s newly liberalized fuel market. Legislation in 2014 created a private electricity market and enables companies to own and operate energy infrastructure for the first time since 1938.

Lisa Viscidi, director of the Energy, Climate Change & Extractive Industries program at Inter-American Dialogue, a Washington-based consultancy, predicts more companies will join Fermaca in seeking to profit from Mexican energy as the sector’s new rules come into focus.

“Eventually you will see a more diversified field,” Viscidi said. “We’ve already seen some deals where investors have taken minority stakes in energy infrastructure, and the reform opens up more opportunities for private companies for power generation.”

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