BlackRock Inc., the world’s biggest money manager, and First Reserve Corp. have signed a historical deal with Mexico’s national oil company Petróleos Mexicanos (PEMEX) to build a pipeline bringing gas from Eagle Ford shale to Central Mexico. Upon completion, this will be the first such partnership with foreign capital since the approval of Mexico’s historic constitutional energy reform in 2013.
BlackRock and First Reserve will acquire approximately forty-five per cent equity interest in two natural gas pipelines, Los Ramones Phase II North and Los Ramones Phase II South, equivalent to approximately USD 900m.
This is the second phase of a pipeline project, the first part of which – Los Ramones Phase I – was completed in December 2014.
Los Ramones Phase I is a 48 inch in diameter and 118km-long pipeline running from Camargo, Tamaulipas, on the U.S. border to Los Ramones, Nuevo Leon, with the capacity to deliver 2,100 million cubic feet a day of gas.
The 42in diameter Los Ramones II South / Sur will span 291.7km from San Luis Potosi to Apaseo El Alto, Guanajuato. This section of the pipeline will have a designed capacity to deliver 1.42 billion cubic feet a day of natural gas. The Los Ramones II North will start from Nuevo Leon, traverse Tamaulipas state and end at San Luis Potosi. Its minimum delivery capacity will be 1.43 billion cubic feet a day of natural gas.
The whole project aims to deliver inexpensive U.S. shale gas from Eagle Ford formation in Texas to Mexico which, according to Nelson Balido with the San Antonio-based Energy Council of the Americas, does not produce enough natural gas to meet domestic demand.
The pipeline will be a boon to the Mexican manufacturing industry, which is the most dynamically developing sector of the country’s economy. Also, according to Mr Balido, a growing number of “maquiladoras” have created a tremendous need for natural gas south of the border. Mexican “maguiladoras” are small manufacturing operations in a free trade zone, where factories import material and equipment on a duty-free and tariff-free basis for assembly, processing, or manufacturing and then export the assembled, processed and/or manufactured products, sometimes back to the raw materials’ country of origin.
According to Bloomberg, the Los Ramonas deal is the first step for BlackRock towards a dedicated local platform and set up a team in the country.
The asset manager is expanding debt and equity offerings targeting infrastructure projects as clients seek longer term investments at higher yields as interest rates hover near historic lows, Chief Executive Officer Laurence D. Fink said earlier this year.
“Mexico is our next big move,” Jim Barry, the global head of BlackRock’s infrastructure investment group, which manages more than $6 billion, told Bloomberg. The “structural shifts” from reform are creating attractive investment opportunities, he said, so “we’re now in the Mexico infrastructure market forever.”
“There are incredible economic and social changes taking place in Mexico, which are positioning the country for strong, long-term economic growth and we are excited to grow our footprint in the country,” Armando Senra, head of Latin America & Iberia at BlackRock told Oil & Gas Technology. “Building upon the well-established track record of our business in Mexico, an expansion of our infrastructure investment footprint will offer BlackRock’s local and international clients access to previously untapped investment opportunities.”
Mark Florian, managing director and head of Infrastructure Funds for First Reserve added: “For First Reserve, this investment is a continuation of our model of working with strong counterparties under long-term capacity contracts on behalf of our investors. We value our direct relationship with Pemex and are pleased to be partnering together to contribute to the expansion of Mexican energy infrastructure, which should drive substantial benefits for the broader Mexican economy.”
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