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Problems in the pipeline for Sempra’s subsidiary in Mexico

An IEnova worker helps with pipeline construction in Mexico.
(Sempra Energy)

Sempra Energy, San Diego’s Fortune 500 energy giant, has made sizable investments across Mexico, looking to take advantage of the Mexican government’s decision more than four years ago to dramatically reform its energy system and open it up to projects from foreign companies.

But an incident in a small town in the state of Sonora offers a stark example of how expensive plans can be disrupted.

Last August, some members of the Yaqui tribe — one of 68 indigenous groups in Mexico — hopped onto a backhoe and dug a 25-foot chunk out of a natural gas pipeline in the village of Loma de Bacum.

It’s part of a 500-mile pipeline project operated by IEnova, Sempra’s subsidiary in Mexico. The pipeline, said to be worth $400 million, transports natural gas from Arizona to Mexico’s Pacific Coast.

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According to Mexico’s Energy Ministry, seven other Yaqui groups along the pipeline’s route signed off on the project, but the Yaquis in Loma de Bacum said they did not approve a nine-mile stretch of the pipeline that runs through their farmland.

“If they want to build a pipeline, that’s fine,” Guadalupe Flores, one of the town’s leaders, told Bloomberg News in December. “But it won’t pass through here.”

IEnova and Sempra officials turned down a request for an interview, saying only through a representative that a section of the Sonora pipeline “is out of operation” and that “IEnova is awaiting the judge’s resolution in order to be able to repair the pipeline.” Sempra also is the parent of Southern California Gas Co. and San Diego Gas & Electric Co.

A $2.1-billion undersea pipeline project that would run from south Texas to the Mexican port city of Tuxpan has also been delayed, reportedly because of legal actions from a fishing cooperative and an indigenous group. IEnova has partnered with TransCanada on the project.

IEnova is not the only energy company that has received pushback.

At least four other pipeline projects in Mexico have been stalled or temporarily suspended. Some delays have lasted two years.

There have also been protests over wind farms in the state of Oaxaca — some from indigenous groups opposed to the project outright and others from landowners who wanted higher payments from developers.

“It’s been frustrating for a lot of developers,” said John Padilla, managing director of IPD Latin America, an energy consulting firm.

“In the past, when you had monopolies running things, if the state and local officials didn’t like [a given project], well, too bad,” Padilla said. “That wasn’t always the case but it did happen.”

Energy reform changed the rules of the game.

Passed in 2013 and 2014, the legislation ended the monopolies of Mexico’s state-owned petroleum company Pemex and electric company CFE.

International companies were encouraged to strike deals to help modernize, streamline and upgrade the country’s energy landscape. Only 7% of households in Mexico have access to natural gas.

At the same time, though, energy reform required consultations with indigenous groups and other interested parties as part of the permitting process.

“In the country, where some of the basic needs are not taken care of, you can completely understand why local groups — indigenous or otherwise — will use the leverage they have to try to get someplace,” said Duncan Wood, director of the Mexico Institute at the Washington-based Wilson Center.

Mexico’s natural gas trade association in December urged the government to do something, saying disruptions hinder “the creation of new jobs and the generation of electricity that is cleaner and more competitive.”

Wood said the problems underscore the need for companies to do their homework in any community it wants to do business.

“You have to bring in everybody and you have to do this in as open and transparent way as possible, because otherwise you are creating problems for yourself down the road,” Wood said.

Politics in Mexico could be a complicating factor.

In July the country will hold a presidential election, and the leader in the polls is Andres Manuel Lopez Obrador, a leftist populist who has been a harsh critic of energy reform.

He has vowed to review all energy contracts — even from last week’s massive auction of offshore oil and gas rights estimated to generate $93 billion from investors, including Royal Dutch Shell.

Renegotiating the North American Free Trade Agreement among Mexico, the U.S. and Canada is also an ongoing concern.

“We’re moving fast and furiously into the election cycle and that will dominate the discussion,” Padilla said, but he did not think energy reform will be reversed.

Those sentiments were expressed last June by the chairman and chief executive of IEnova, Carlos Ruiz Sacristan, during a presentation with energy analysts.

“The energy reform is here to stay,” regardless of the outcome of the election, Ruiz Sacristan said. “That reform was a continuation of a change that required 75% of the [national] Congress and 51% of the state congress to vote. So it is not easy to change that.”

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rob.nikolewski@sduniontribune.com

Nikolewski writes for the San Diego Union-Tribune.


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