News Article

Interconnecting Pipelines to Enhance the National Network

By Karin Dilge | Tue, 09/06/2022 - 16:56

Mexico is known for its vast natural resources and as a big natural gas consumer. Nonetheless, there are still areas of opportunity to enhance the connectivity of its pipeline network in order to distribute gas more equally around the country. In that sense, new infrastructure projects must be planned and developed, focusing on interconnectivity as a key aspect.

“The development of natural gas network infrastructure in Mexico has been prominent and even extraordinary,” said Areli Covarrubias, Commercial and Development Director, Sempra Infraestructura. Moreover, she explained that most of this development happened in a short period, approximately 15 years. During this time, the gas pipeline network has grown from 11,000km to 17,000km and the number of compression stations has doubled. There are also three new regasification terminals where previously there were none, she added. These efforts were achieved thanks to the collaboration between the private and public sectors. Nonetheless, despite having this infrastructure, many factors are still lacking in order to achieve a solid level of energy security, as well as to keep growing Mexico’s economy and take advantage of its strategic position.

“The gas sector is going through a critical time due to the crisis involving Russia and Ukraine. Natural gas remains key to the energy sector and Mexico has an important opportunity due to its geographical position,” says Fernando Tovar, CEO, Fermaca. The war in Eastern Europe has made it clear that although the energy transition toward cleaner resources is a fact, natural gas will remain key for the energy sector, for many years to come at the least.

Although Mexico’s natural gas infrastructure has significantly grown in the past few years, there is still a lack of storage terminals around the country. “We only have the capacity for two-day storage, while they have 98 days in countries like Germany and 58 days in the US. There is still a great opportunity to store natural gas here in Mexico, considering it is the neighbor of the the largest global natural gas producer,” added Tovar. Most of Mexico’s gas storage is stored in the form of liquefied natural Gas (LNG), but Mexico has only three LNG plants.

Another of Mexico’s geographical advantages is its Pacific Coast, said Tovar. The global energy crunch is highlighting the need to liquefy gas and develop maritime natural gas transportation options. Currently, all of Mexico’s liquefaction plants are on the side of the Gulf of Mexico, aiming to transport to Europe. If Mexico takes advantage of its Pacific Coast, Mexico could transport natural gas to Asia, where demand for the fuel is immense. Nonetheless, these projects will not be able to rely on the existing pipelines, so new ones will have to be built, explained Tovar. 

"In order to develop these projects, much money and financing are needed, and they will only become more expensive over time," said José Pablo Rinkenbach, Founding Partner and Director General of AINDA. According to Rafael García, Government Relations, TC Energy, the main challenge to attracting investment is the risk perception of the country. “There is a difference between the information that is being communicated in the media and what is happening in reality,” added García. Gustavo Blejer, Managing Director, Bonatti, explained that a company’s project approval is based on security and return of investment. Understanding the dynamic of project development in Mexico is key to that end.

“Lately, conflicts between the private and public sector in the country have grown, but we need to go back to an environment where collaboration is possible in order to increase the benefits and bring gas to more states and industries,” said Tovar. In states where natural gas is present, the GDP is 50 percent higher than in those where there is none, he added. Only with the help of the private sector will it be possible to transport natural gas to the marginalized states, because CFE’s pipelines are built with the purpose to transfer natural gas to CFE plants and not necessarily to interconnect the pipelines or to boost industry and national development. 

“Our country has two main separate transportation systems: CENEGAS’ SISTRANGAS and the Naco-Hermosillo system, but there are no bridges that interconnect them,” said Covarrubias. She explained an effort should be made to interconnect them so that they can operate in a coordinated manner and support the country during crises. Current market challenges show that there is a lack of diversification in the global natural gas supply, which could be a great opportunity for Mexico.

Karin Dilge Karin Dilge Journalist and Industry Analyst