Jorge Suárez
Director General
GNPI Mexicana
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View from the Top

Private Sector Must Drive Natural Gas Deployment

Wed, 02/19/2014 - 15:10

Q: What opportunities will the coming Energy Reform create for GNPI Mexicana? 

A: We specialize in the construction of natural gas facilities and providing services and maintenance for our clients’ facilities, to allow them to better comply with norms and regulations. The main opportunities for GNPI Mexico will come with the anticipated increase in demand for these types of services. For example, one of our clients has been unable to build a natural gas installation because PEMEX has been reluctant to approve it, apparently because our client does not have the right capacity. Our client operates an 18- inch pipeline but PEMEX requires a connection through a 48-inch pipeline. However, the 48-inch duct is 60km from the site of the installation, while an 18-inch duct is 20km away. To comply with PEMEX’s demand would considerably increase the level of required investment.

Q: Which have been the most important projects for GNPI and what were the main lessons that the company learned from them?

A: We have installed many steel and polyethylene pipelines around Mexico City. Before, pipelines were generally made of steel, so installing polyethylene was a completely different experience. Every time we work on a new project we learn something different, especially when considering the changes to the regulatory framework in recent years. PEMEX used to be the entity in charge of establishing norms and regulations, but CRE is now in charge of that. Issues can arise as soon as gas installations begin operating. Our clients do not usually have the technical knowledge necessary to notice these issues before they start operating. The main hindrances come from poor equipment selection and quality of the installation. This means that modifications are often needed shortly after a plant starts operating.

Q: What actions could be taken by both the public and private sector to address the lack of gas pipeline infrastructure?

A: Many cities need access to natural gas but are denied that access due to the lack of sufficient gas pipelines. The first issue that needs to be addressed is financing. Currently, if a company wants access to natural gas it needs to build a 48-inch pipeline for its own use, which requires a large investment. PEMEX is setting limits on the access to natural gas, which means a barrier for the industry. There is a huge contradiction. For example, while we are invited to attend symposiums to discuss how to fully develop cogeneration schemes, there are still severe limitations on the use of natural gas. It is not consistent to hear that there is plenty of natural gas while its use is being limited. We constantly see increased promotion of the use of natural gas, but its use is facing more restrictions with every passing month.

Q: How could this problem be solved?

A: Mexico has not exploited or taken advantage of its energy potential, due to the lack of governmental capacity to manage the economic and political implications of said potential. The current government is just beginning to realize that we are lagging behind and that there is not enough infrastructure to meet the increasing natural gas demand from industries and the general public. For this reason there are many doubts surrounding future investments. What will happen if a company invests in Mexico but suddenly faces a lack of natural gas to meet its requirements?

The main contribution of the Energy Reform will be allowing companies to invest and exploit the resources that the government cannot. You cannot ask companies to consume natural gas instead of other resources if the government does not provide the necessary tools for them to do so. Unfortunately, this has caused the fossil fuel sector to become stuck. The government uses PEMEX revenues to cover its budget needs. If 60-70% of its revenue is allocated to paying taxes, PEMEX is barely sustaining itself and reinvestment proves impossible. Only the private industry can take advantage of this situation, because the government has proved over and over again that it does not have the capacity to do so.

Private companies have to contribute to the development of the energy sector, but people are currently afraid of investing given the security situation in Mexico. Large territories are controlled by violent groups, and nobody wants to invest in a problematic area; the situation is so fragile that even strong and structured companies have doubts