Partnership Plans Gas Pipeline for Baja California
A partnership including Sempra Energy and PG&E; Corp. announced plans Monday to build a 212-mile pipeline linking Baja California to the North American natural-gas grid in a bid to meet the border area’s fast-growing energy needs as well as a Mexican mandate to reduce pollution.
News of the pipeline comes against a backdrop of tightening gas supplies in the U.S. and rising prices, pressured by a slowdown in drilling and a decade-long economic boom. In fact, the pipeline’s promoters say they are building it partly to ensure Baja an unencumbered source by bypassing the Southern California gas grid and its energy-hungry customers.
The pipeline still requires approval by U.S. and Mexican regulators and could face competition. Among those interested is InterGen, a Boston independent power producer that is bidding to build a power plant in Baja California, and El Paso Natural Gas Co.
It’s no wonder that U.S. energy companies are eyeing the Mexican market, which is underserved and growing quickly. Energy consumption in Baja California is increasing at an annual rate of 10% to 14%, higher than the overall Mexican energy growth rate of 8% and many times the U.S. consumption growth rate of 2%, said Donald E. Felsinger, chairman of Sempra Energy International, a subsidiary of the San Diego-based parent company.
Driving the demand is the rapid growth of maquiladoras, the foreign-owned manufacturing plants where goods are assembled and then shipped back across the border for sale in the U.S. Plentiful jobs have attracted tens of thousands of Mexicans from the interior and pushed Baja’s population growth rate to 4.4%, nearly triple the Mexican rate overall.
During peak periods in the summer, Baja California already must import 10% of its energy needs, Sempra officials have said.
The state-controlled Mexican power industry has been under congressional mandate to clean up the highly polluting, mostly fuel-oil-burning power plants by replacing them with cleaner-burning natural-gas turbines. A 620-megawatt Rosarito Beach plant that burns fuel oil is being converted to natural gas, with final changeover expected next month.
To meet the growing demand while reducing pollution, Mexican government officials are hoping to double northern Baja’s current power capacity of 1,300 megawatts in the next five years. Some of that added capacity will come from new geothermal energy at Cerro Prieto, but the bulk will come from natural-gas-generated electricity.
Prospective customers for gas from the proposed $230-million pipeline would include the existing 620-megawatt Rosarito Beach plant. Sempra and Proxima, the Mexican energy company that is a partner in the new pipeline proposal, recently completed a 23-mile pipeline that connects Rosarito with the Sempra gas grid in San Diego County. In 1998, Sempra won a 10-year, $1-billion contract to provide natural gas to the Rosarito power complex.
The new pipeline--with a capacity of up to 400 million cubic feet a day, or enough to supply plants generating 2,500 megawatts of power--would also target two new projects being planned for Baja.
The first is a 540-megawatt plant being built adjacent to the existing Rosarito plant by Swiss-based Asea Brown Boveri and Japan-based Nissho Iwai. Development rights for the other plant totaling up to 750 megawatts are to be awarded Friday by Mexico’s Federal Electric Commission.
The two bidders for the second plant include InterGen, which says it would build a $400-million plant near Mexicali, and AES Corp. of Arlington, Va., which isn’t disclosing the size or location of its plant should it win the bidding. The plant would be the last of 10 independent power-production facilities that the Mexican government awarded in a move to break the state monopoly and encourage competition.
“The maquiladoras have a lot to do with the tremendous growth,” said Phil Cantner, InterGen vice president of Latin American development in Mexico. “You drive through Tijuana and everything seems to be bustling, and that seems to be the case all along the border region.”
The proposed pipeline would start at the El Paso Natural Gas Co. line near Ehrenberg, Ariz., travel 77 miles west before crossing into Baja California near Mexicali, then continue 135 miles west to interconnect with the Rosarito pipeline south of Tijuana. The PG&E; National Energy Group would build the U.S. leg of the pipeline, and Sempra would direct development of the Mexico portion.
If approved, the proposed pipeline could be in service as early as January 2003.
The pipeline’s developers hope that natural gas will also become the energy source of choice for residents and manufacturers in Baja who rely mainly on propane and fuel oil for industrial boilers and cooking. Increased use of cleaner-burning gas would improve air quality by reducing emissions in the border area, Sempra’s Felsinger said.
To speed development of gas-fired energy projects and encourage investment in infrastructure projects, Mexico last year eliminated a 4% tariff on imported natural gas.
Michael Heim, a natural gas analyst with A.G. Edwards in St. Louis, said the Mexican market is a good outlet for Sempra and signifies “increased cross-border interaction, and that benefits both sides.”
Sempra’s other Mexico projects include natural-gas distribution operations in Mexicali, Chihuahua and La Laguna.
