Is This Private Equity Buy The Year’s Best News For Natgas?

Very important, although little discussed, news item emerging Friday. Which could have major consequences in propping up U.S. natural gas prices. 

The announcement in question was two of the world’s largest private equity firms buying into Mexico. Specifically, in supporting the development of key natural gas pipelines in the country. 

PE stalwarts BlackRock and First Reserve said they have committed to take a 45% interest in two Mexican pipeline projects: Los Ramones Phase II North and Los Ramones Phase II South. The price for the investment was not revealed — but will likely run into the billions of dollars. 

That’s because the Los Ramones pipelines are two of the largest pieces of energy infrastructure built in Mexico for a long while. Combined, the two pipes will run for 744 kilometres, connecting the northern and central parts of the country — with the aim of linking Mexican natural gas buyers with abundant supply created by shale gas in America. 

Plans for the Los Ramones system have been on the books for years now. Spurring natural gas firms in the U.S. to build a number of new pipeline projects the last few years, aimed at carrying natgas from big shale plays like the Eagle Ford to the Mexican border. 

But from there things had looked somewhat stalled of late. Because natgas infrastructure on the Mexican side appeared to be developing much slower than in America.

But the BlackRock / First Reserve funding of Los Ramones gives a major shot in the arm to this part of the export picture. These billion-dollar firms will now partner with Mexican state petroleum giant Pemex to complete the pipelines — nearly guaranteeing that sufficient capital and expertise will be available. 

The best part for U.S. natgas producers is that construction on the Los Ramones system is already underway. With full operations expected to commence in mid-2016. 

Projections are that Mexican demand from this system could draw up to 7 billion cubic feet per day of exports from America — equal to nearly 10% of total current production across the country. Those are the sorts of numbers that could start to move prices. Energy investors should be marking this project completion date in their calendars. 

Here’s to getting a big job done,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

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