CNG Transportation: an Alternative to Gas PipelinesWed, 02/19/2014 - 15:16
Mexico’s energy transition strategy creates new opportunities for the natural gas sector, but Mexico’s pipeline network is currently lacking the capacity to fulfill the distribution needed to meet demand. Despite a large-scale investment being made in pipeline infrastructure, this capacity constraint has been seized upon as a market opportunity by companies dedicated to the transportation of compressed natural gas (CNG).
Under the aforementioned scenario, Brazilian firm NEOgás entered the Mexican gas sector with local partner Grupo Diavaz, through a joint venture under the name NEOmexicana de GNC. Alejandro Allier, General Manager at NEOmexicana, explains that Grupo Diavaz covered every aspect related to gas supply while NEOgás brought the technical knowhow, engineering expertise, including logistics, and the design and production of decompressing units and trucks. Unlike other companies, NEOmexicana encompasses the whole CNG delivery process. Additionally, NEOmexicana was the first company to get a permit from SENER to work with CNG in Mexico, and NEOgás is currently the only company in the world with an ISO 9001 certification for compressed natural gas operations.
Allier says NEOmexicana is a direct beneficiary of PEMEX’s decision not to invest in this infrastructure, but he refutes that PEMEX is unwilling to do so. He sees it more as a matter of available resources, and explains that PEMEX cannot afford to fully develop the Mexican pipeline network, in large part because it has to comply with its fiscal duties. This has proven to be a financial limitation for PEMEX but a good business opportunity for NEOmexicana, which capitalizes on the lack of infrastructure for natural gas in Mexico. “Several pipelines are going to be built in the near future. However, the infrastructure will still not be sufficient due to the size of the country,” tells Allier, while admitting that the transportation of CNG by truck could not possibly compete with pipelines. Despite this, he sees collaboration opportunities between companies like NEOmexicana and pipeline developers as more likely than increased competition.
Anyone would have thought, according to Allier, that the most economically efficient way to supply natural gas in Mexico would have been for PEMEX to develop natural gas basins in the country. It makes sense from a geological viewpoint and there are significant shale gas deposits that have not been exploited. This might seem puzzling; however, PEMEX is trying to maximize return on investment. “There is no way natural gas can compete with oil,” explains Allier. “PEMEX’s course of action is understandable from a business perspective, but it is not necessarily the best course of action for the country.” Allier claims this situation might change once other players are allowed in the market, after the Energy Reform is implemented. Allier is in favor of letting private investors participate in gas and oil production. If this happens, oil would be handled by international corporations while smaller companies would take on gas, as happens in the US. However, Allier also sees PEMEX holding on to its status as Mexico’s only gas producer for years to come.
Although the development of pipelines does not threaten NEOmexicana’s activities, the company has to evolve alongside the sector. If NEOmexicana attracts a client outside the pipeline network, the company is able to interconnect other nearby customers and create an important consumption point. The firm develops maps charting self-supply opportunities to demonstrate the need to build a pipeline or to show distributors where CNG is consumed. Even if a pipeline eventually reaches some of NEOmexicana’s clients, the company can always move on, and this has become an integral part of its strategy. “NEOmexicana’s business model is completely mobile; we distribute gas by truck so we are always ready to move somewhere else,” says Allier. This mobility is helped by the fact that natural gas fuel stations across the country share a basic feature: they are interconnected to the natural gas grid. They extract the gas and then compress it by using a booster. The business strategy for NEOmexicana is based on identifying significant industrial consumption areas, determining if they have access to natural gas, and then figuring out the shortest routes to get there, says Allier.
Currently, NEOmexicana caters to industrial customers only, but supplies a wide range of sectors. Allier says that the company has focused on opportunities in the industrial sector because many companies do not have access to natural gas but would like to take advantage of the fact that natural gas prices will remain low for years to come. Once pipeline infrastructure becomes a fierce competitor, NEOmexicana will tackle other sectors, such as natural gas vehicles (NGV). Allier sees this as an interesting avenue in which competition will be inherent, since a single company could never cover Mexico’s entire demand for NGVs. Despite this, NEOmexicana harbors the ambition of one day being the largest supplier of NGVs for Mexico’s industrial sector.