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Sempra Energy/TransCanada JV Wins Pipeline Deal in Mexico

Zacks Equity Research
Updated

Diversified energy company, Sempra Energy SRE announced that Infraestructura Marina del Golfo ("IMG") has been awarded a transportation contract to build, own and operate a natural gas pipeline from South Texas to Tuxpan in Mexico. IMG is a joint venture between Sempra Energy’s Mexican unit, IEnova, and TransCanada Corporation TRP. The contract was awarded by the Comision Federal de Electricidad ("CFE"), the state-owned power company in Mexico.

Details of the Project

The 497-mile South Texas-Tuxpan pipeline will have a capacity of 2.6 billion cubic feet per day and cost an estimated $2.1 billion, of which TransCanada will contribute nearly $1.3 billion. The project will be backed by the CFE’s 25-year natural gas transportation service contract and it is expected to come on-line in late 2018. TransCanada will develop, operate and own 60% of the project, with IEnova will have a 40% stake in it. The project will aid the transition of Mexico’s utility companies from oil to natural gas.

Going Forward

Sempra Energy has multiple development ventures underway, which are expected to boost its top and bottom line over the long haul. The company plans to spend $18.5 billion as capital expenditure between 2016 and 2020.

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Moreover, the company believes that its three Liquified Natural Gas (“LNG”) export expansion projects have a competitive edge, which will drive long-term demand growth. The Cameron LNG liquefaction export facility is on track to complete all three trains in 2018. Starting 2019, it is expected to generate $300 million to $350 million in earnings annually.

SEMPRA ENERGY Price

SEMPRA ENERGY Price | SEMPRA ENERGY Quote

Other Contracts Awarded by the CFE

Mexico is focused on meeting rising electricity demand across the country with clean energy. Natural gas pipeline contracts awarded by the CFE, the state-owned power company in the country, indicates a substantial increase in the use of natural gas for power generation.

On the same day,  Spectra Energy Corp.’s SE unit Valley Crossing Pipeline, LLC, was awarded a contract for the construction of a 168-mile intrastate natural gas pipeline project by the CFE for supplying natural gas transportation services to meet Mexico's growing electric generation needs. The project is expected to come on-line in early 2018 and has an estimated cost of $1.5 billion.

Zacks Rank & A Key Pick

Sempra Energy currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the same space is Clean Energy Fuels Corp. CLNE, sporting a Zacks Rank #1 (Strong Buy).

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SEMPRA ENERGY (SRE): Free Stock Analysis Report
 
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