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TC Energy and CFE Agree Gas Pipeline JV

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TC Energy Corporation and the CFE, Mexico’s state-owned electric utility, have agreed to forge a strategic alliance to accelerate the development of natural gas infrastructure in the central and southeast regions of Mexico.

TC Energy and the CFE have agreed to consolidate previous TSAs executed between TC Energy’s Mexico-based subsidiary, TGNH, and the CFE in connection with our natural gas pipeline assets in central Mexico under a single, US dollar-denominated take-or-pay contract that extends through 2055. This new TSA will also govern related new infrastructure projects to be developed in conjunction with the CFE.

François Poirier, president and CEO of TC Energy, said: “We are pleased to have been selected by the CFE as its partner and to forge this strategic and important public-private partnership, a first-of-its-kind in the CFE’s 85-year history.

“This alliance capitalizes on each of our strengths. Together, TC Energy and the CFE will develop critical energy infrastructure to serve the growing central and southeast regions of Mexico. The Southeast Gateway Pipeline will be TC Energy’s second marine natural gas pipeline in Mexico, connecting to the coastal regions of Veracruz and Tabasco, and is another prime example of our ability to originate world-class projects that offer incremental growth to our long-term outlook.”

In connection with the strategic alliance, TC Energy and the CFE have reached an FID to proceed and build the Southeast Gateway Pipeline, a 1.3 billion cubic feet per day, 715-kilometre offshore natural gas pipeline to serve the growing need for safe, reliable and affordable energy in the southeast region of Mexico.

The estimated project cost of $4.5 billion was developed utilizing a third-party verified Class three estimate that includes over 70 percent fixed cost pricing. Subject to review and approvals, the agreements between TC Energy and the CFE allow for sharing of costs above those approved at FID.  Project development and execution will leverage our prior experience constructing the 770-kilometre, 2.6 billion cubic feet per day offshore Sur de Texas pipeline that was placed into service in 2019, approximately three years following FID. The Southeast Gateway Pipeline will originate onshore in Tuxpan, Veracruz, then proceed offshore, making landfall at Coatzacoalcos, Veracruz and Dos Bocas, Tabasco. The project is anticipated to be in-service by mid-2025.

Subject to regulatory approvals from Mexico’s economic competition commission (COFECE) and the Regulatory Energy Commission (CRE), the strategic alliance provides the CFE with the opportunity to hold an equity interest in TGNH. The CFE’s equity interest is conditional upon the CFE fulfilling specified capital contributions along with land, community and permitting responsibilities on TVDR, TXTL and the Southeast Gateway Pipeline. Regulatory approvals related to the CFE’s equity participation in TGNH are expected to take up to 24 months.

Following positive FID, in-service of the Southeast Gateway Pipeline project and subject to certain other conditions, the CFE’s equity interest in TGNH would equal 15 percent. At the end of Southeast Gateway Pipeline’s contract life in 2055, and after TC Energy has recovered a full return on and of capital, the CFE’s equity interest in TGNH would increase to approximately 35 percent, thereby reflecting the equivalent of approximately 49 percent of the net value of the Southeast Gateway Pipeline and 15 percent of the other TGNH pipelines.

By leveraging their competitive strengths, CFE will continue to develop solutions to move, generate and store the energy North America relies on in a secure and increasingly sustainable way.

The final investment decision to move forward with the development of the $4.5 billion Southeast Gateway Pipeline project increases their already industry-leading secured capital program to $33 billion and fulfills their goal of sanctioning approximately $5 billion per annum of high-quality energy infrastructure projects.

Poirier commented: “Our value proposition remains constant. We continue to be opportunity rich, originating world-class projects that adhere to our risk preferences and stated return expectations. TGNH’s predictable cash flows are underpinned by long-term, take-or-pay, US dollar-denominated contracts with an investment grade counterparty.”

Poirier continued: “We will always utilize the most optimal funding tools to maintain our financial strength and flexibility while delivering per share value. Accordingly, the incremental growth from the Southeast Gateway Pipeline project will be prudently funded through a combination of common equity, hybrid securities, long-term debt, commercial paper as well as potential non-core asset sales and strategic partnership opportunities in Mexico.

“The alliance with the CFE and sanctioning of the Southeast Gateway Pipeline project provides further visibility to earnings and cash flow growth while supporting progress towards our overall leverage target.”

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