Agustin Humann Adame
Specialist
Natural Gas Business Development
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View from the Top

Natural Gas Opens Doors for the Private Sector

Wed, 02/24/2016 - 12:28

Q: What opportunities and obstacles will the private sector face, considering CFE is aiming to become the biggest consumer of natural gas and is planning to increase its presence in that particular sector?

A: Frankly, I do not perceive any immediate obstacles; on the contrary, the chance to freely import and produce gas will provide the private sector with many business opportunities. At the moment, LNG is overpriced due to the liquefaction and transportation processes, but now with the changes to CFE, companies will be able to import cheaper gas. The production of gas in the US is promising, and will enable the development of a series of intermediary trading companies that will manage the gas, as well as players dedicated to its storage. In the coming five years, demand will grow thanks to the prices and the benefits of the resource, so the focus will be on satisfying this demand.

Q: In your opinion, is the current infrastructure in the country advanced enough to cope with these changes?

A: Infrastructure needs to catch up with the demand, and advancements have been made with Los Ramones I and II. Pipelines are being built or designed in the major ports of Mexico, such as Lázaro Cárdenas, but even then there is a huge gap in terms of infrastructure. One of the elements that have hindered the private sector’s construction of pipelines is the fact that there were no conditions to establish a fixed tariff that would provide the appropriate bankability for the investment. Any investor that puts money on the table always looks for the fastest ROI and this sector did not provide it, so players had to look elsewhere. On the other hand, PEMEX stopped constructing pipelines because it ran out of resources, and the private players, while allowed to construct, would not do so due to lack of tariffs. Now, the system determined by CRE makes the development of the pipeline feasible for the private sector. In the past, CFE would only build enough pipelines to satisfy the demand of its power plants. Now, the new pipelines that CFE builds will have a capacity exceeding that which it normally requires. As a result, there will be an Open Season that will allow for purchases by interested parties.

Q: What were the factors that led to the stopping of critical alerts?

A: One of the factors was the stabilization of production by PEMEX. The cost of production at the time made it far more attractive to re-inject gas from its own production to produce more oil, rather than introducing it into the national duct system. PEMEX was trying to maximize the value of the investments it was administrating. However, given the negative effects the gas shortage was having on the industrial sectors, the government decided that all gas being produced would be introduced into the pipeline for distribution purposes.

Part of the demand was satisfied by the produced gas and another part by the LNG imported through Manzanillo. This did not create expectations of immediate consumption in companies that urgently required natural gas. In fact, the companies had to wait until they had full certainty of gas availability. PEMEX also took matters into its own hands by building specialized plants to have the nitrogen removed from the gas it produced so that this could be introduced into the pipelines. These actions, in conjunction with the importation and the creation of compression stations, helped in addressing the critical alerts, which particularly affected industries in the Bajio region.

Q: How are you assessing the potential of Mexico as a producer of natural gas, and how will this enable the country’s full energy independence?

A: Mexico, as a producer of gas, occupies an important role in proven and probable reserves. Production costs in Mexico are high compared to those of the US, and this is why it is far more convenient to import. There are a series of elements to be considered, such as human capital and land rights, when planning to build a pipeline. The production of gas in the medium and long term is completely feasible; even the Ministry of Energy, through its projections and analyses, predicts that Mexico could be exporting gas by 2025. One of the questions that arise in the importation of natural gas is whether Mexico can achieve full energy independence. Right now 18% of the natural gas that is consumed in Mexico is imported. While this might mean dependence, Mexico is in no risk of shortages. I believe this figure will remain stable and then slowly decrease as production levels rise.