TransCanada awarded new $400M Mexican pipeline contract; follows earlier $1B win

CALGARY – Mexican authorities have awarded TransCanada Corp. a second contract in a week to build a natural gas pipeline.

The Calgary-based company (TSX:TRP) said Monday it will invest about US$400 million in a 413-kilometre pipeline between El Oro and Mazatlan, near Mexico’s west coast.

The 61-centimetre-diameter pipeline has a contracted capacity of 202 million cubic feet a day and is expected to be in service in the fourth quarter of 2016, TransCanada said.

The Mazatlan pipeline will connect with the US$1-billion Topolobampo pipeline that TransCanada was awarded last week.

TransCanada will build, own and operate the two new pipelines through its Mexican subsidiary, Transportadora de Gas Natural del Noroeste.

Both projects are supported by 25-year natural gas transportation service contracts with the Comision Federal de Electricidad, or CFE, Mexico’s federal power company.

“We are pleased to be working with the government of Mexico on new natural gas infrastructure that will bring its cleaner-burning natural gas to businesses and residents,” said TransCanada president and CEO Russ Girling.

“These new projects build on our experience developing safe and reliable pipelines in Mexico and across North America.”

TransCanada already has one of North America’s largest networks of gas and oil pipelines, including two natural gas lines already operating in central Mexico. The company built, owns and operates the Guadalajara and Tamazunchale natural gas pipelines in central Mexico and will soon break ground on a Tamazunchale pipeline extension.

“It looks like a relatively low-risk extension of the expressed strategy of being involved in infrastructure in North America,” said Philip Adams, a Chicago-based analyst with Gimme Credit, a corporate bond research service.

In addition to its network of some 68,500 kilometres of natural gas pipelines that tap into virtually all major gas supply basins in North America, TransCanada is also developing one of North America’s largest oil delivery systems, including the controversial Keystone XL pipeline designed to transport more Canadian crude to U.S. markets.

Adams said Keystone XL will be the “big swing factor” for TransCanada in the next few years.

“Mexico is a nice strategic add-on, but certainly not the main event,” he said.

The company began work this summer on a US$2.3-billion crude pipeline connecting an oil storage hub at Cushing Okla., to Texas refineries that is expected to start up in 2013. The Gulf Coast pipeline was initially part of TransCanada’s $7.6-billion Keystone XL proposal, which has been held up by political wrangling and environmental concerns south of the border.

A decision on the northern portion of Keystone XL is expected in early 2013, and will incorporate changes to the pipeline’s route through Nebraska to avoid environmentally sensitive areas.

Adams said he expects the pipeline to win its long-awaited presidential permit regardless of who wins the White House in the U.S. election.

“I think tomorrow’s election doesn’t matter,” he said.

TransCanada is also one of the continent’s largest providers of gas storage and related services with approximately 380 billion cubic feet of storage capacity and has interests in more than 10,900 megawatts of power generation in Canada and the United States.

TransCanada shares rose 12 cents to $45.32 Monday afternoon on the Toronto Stock Exchange.