TransCanada Wins Contract For $420 Million Pipeline In Mexico

July 2009 Vol. 236 No. 7

TransCanada Corp. was the successful bidder on a contract to build, own and operate a US$320 million pipeline in Mexico.

The project is supported by a 25-year contract for its entire capacity with Comision Federal de Electricidad (CFE), Mexico’s state-owned electric company.

The proposed Guadalajara Pipeline will follow a 193-mile route from an LNG terminal under construction near Manzanillo on Mexico’s Pacific Coast to Guadalajara, the second-largest city in Mexico. The 30-inch pipeline will be capable of transporting 500 MMcf/d of natural gas. The majority of capital expenditures are expected to be made in 2010 with a targeted in-service date of March 2011.

“The Guadalajara Pipeline project builds on TransCanada’s excellent working relationship with CFE,” said Hal Kvisle, TransCanada president/CEO. “With Mexico’s growing reliance on natural gas and TransCanada’s proven success in building, owning and operating Mexican pipelines, the Guadalajara Pipeline offers an excellent opportunity for TransCanada to expand its footprint in Mexico.”

TransCanada owns and operates the 81-mile Tamazunchale Pipeline in central Mexico. In the 1990s, TransCanada built the 435-mile Mayakan Pipeline and the 133-mile El Bajio pipelines. Those pipelines, later sold, were the first non-PEMEX pipelines in Mexico. PEMEX is the state-owned petroleum company.

The Guadalajara Pipeline would serve power generation load in Manzanillo and Guadalajara as well as connecting to an existing PEMEX natural gas line near Guadalajara. The source of natural gas will be a liquefied natural gas terminal near Manzanillo, primarily supplied by Peruvian LNG.

In other news, TransCanada has entered into an agreement to sell North Baja Pipeline, LLC to TC PipeLines, LP. As part of the transaction an affiliate of TransCanada, TC PipeLines GP, Inc. (the General Partner), agreed to amend its Incentive Distribution Rights (IDR) with the Partnership.

The aggregate consideration received from the Partnership will include a combination of cash and common units totaling US$395 million. TransCanada will receive US$200 million in cash and 6,371,680 common units of the Partnership. With the close of this transaction TransCanada’s ownership of the Partnership will increase to 42.6%.
TransCanada acquired the North Baja Pipeline System in 2004 and will continue to operate the pipeline following the transfer of ownership. The system is an 80-mile natural gas pipeline that extends from southwestern Arizona to a point on the California/Mexico border and connects with a natural gas pipeline system in Mexico. North Baja consists of 30 and 36-inch pipe with capacity of 600 MMcf/d.