Ricardo Ortiz Hernández
Director General
Compañía Mexicana de Gas
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Insight

Natural Gas Pipelines for Economic Development

Wed, 02/19/2014 - 12:08

The critical alerts for natural gas supply issued by PEMEX in the last few years, which were addressed by liquefied natural gas imports, have had a negative impact on CFE’s finances. According to the utility’s numbers, the cost overruns of using fuel oil instead of natural gas in thermoelectric plants led to a cost of US$1 billion, which represented almost 30% of the financial losses incurred by CFE in the first nine months of 2013.

The critical alerts have not only been a challenge for CFE, but for natural gas users as well. Ricardo Ortiz Hernández, Director General of Compañía Mexicana de Gas, claims PEMEX’s National Pipeline System as well as other private carriers do not have sufficient capacity to supply the country’s needs, while there is still a shortage of natural gas availability for Mexico. “We have two main issues here, which will not totally be resolved by the Los Ramones pipeline. PEMEX has not issued any critical alerts since June 2013, and with the entrance of liquefied natural gas, the system has balanced out. But it has also had an impact on the price, as LNG is currently selling at around US$17 per million BTU, which inevitably has a knock-on effect on the price we can offer our clients.” He believes the entry of higher quantities of natural gas through the pipelines that are being built will help further the system and limit the need for purchases of expensive liquefied natural gas. The Mexican natural gas market has flourished as it is directly influenced by the US natural gas price, which has undergone a price reduction as a result of the shale gas boom. Ortiz Hernández explains this has led natural gas to become Mexico’s most competitive energy source. This has seen Compañía Mexicana de Gas receive an increase in clients, particularly from the industrial sector. The residential sector has grown as well, though Ortiz Hernández acknowledges that the city of Monterrey, where the firm is based, has a natural gas culture. “Perhaps the most interesting fact is that consumption at the industrial level has increased because many companies are using natural gas in cogeneration plants,” he adds.

Power generation is a key factor for Compañía Mexicana de Gas as it has experienced an increase in natural gas consumption from clients that have chosen to produce electricity and heat at cogeneration plants in order to access more attractive energy prices. Ortiz Hernández claims natural gas consumption by such clients has increased between 30% and 50%. On the other hand, the company is detecting the interest of firms that want to establish themselves in the geographic zone Compañía Mexicana de Gas attends with the goal of producing electricity in cogeneration plants and selling it to clients, which also drives natural gas demand. “The challenge for us will be being able to make the most out of these changes. In order to prepare for the coming opportunities, we are investing in increasing our pipeline capacity to improve availability in the geographic area where the company has the distribution permit,” says Ortiz Hernández.

The company was founded in 1927 and has over 80 years experience delivering natural gas in the metropolitan area of Monterrey. Ortiz Hernández proudly recalls that the first natural gas receiver station in Monterrey belonged to Compañía Mexicana de Gas. In 1990, Grupo Diavaz acquired Compañía Mexicana de Gas, which then went through a crucial modernization and renovation period. On the other hand, it enabled the group to participate in the whole value chain; from exploration and production to distribution to the final consumer. Ortiz Hernández notes that Grupo Diavaz is the only group that has this presence across the value chain. Perhaps one of the most important benefits that came as a result of being part of a conglomerate is that Compañía Mexicana de Gas now has access to better financial tools that have enabled it to improve its operations. “The network modernization and residential market growth were achieved thanks to the financial backup of the group,” says Ortiz Hernández. He explains that for a long time, the company had an industrial calling, but after it was acquired by Grupo Diavaz, it developed a new focus on the residential market. “We have over 100,000 clients and we are growing every year. Part of Companía Mexicana de Gas’ strategic plan is to have 270,000 residential clients connected by 2018,” he adds.

Ortiz Hernández is bullish about the future of natural gas. Nevertheless, he acknowledges that the real challenge is that, through the new policies of the Energy Reform, pipeline construction has to be incentivized in order to reach all of Mexico’s growth centers. “Natural gas has always been a development factor across Mexico. Higher availability will imply higher development and more job creation. Having access to cheap natural gas from the US is an opportunity that we have to seize by developing the required infrastructure,” he says.

Compañía Mexicana de Gas is currently focused on continuing its investments in new infrastructure that caters to Monterrey’s continuing urban growth, as well as improving its position in industrial zones to serve the new companies in the city. On the other hand, new distribution zones, pipeline carrier opportunities and even cogeneration projects are some of the opportunities being analyzed. “We see a great future in the energy sector. We are aware that the energy sector is a key factor for Mexico’s economy and we want to play an essential role within it.”