/
News Article

The Role Natural Gas in the Energy Mix

Wed, 02/25/2015 - 16:58

Moderator: Tania Ortiz, President of AMGN
Speaker: David Madero Suárez, Director General of CENAGAS
Speaker: Jorge Armando Guitérrez Vera, President of Cogenera México
Speaker: David Lozano, Director General of VOPAK
Speaker: Sergio Beristain, Founding Partner of Beristain + Asociados

In a panel that broadly tackled the challenges that lie within Mexico's current natural gas system, Madero Suárez, Director General of CENAGAS, began by referring to the abundant enthusiasm that exists as a result of the Reform. “The challenges of implementing the Reform allow us to lay out some very ambitious terms. We are now very close to signing the documents that will officially give birth to CENAGAS,” he specified. CENAGAS’ mission is to guarantee a reliable supply of natural gas, making it a very important player from the start, given the focus placed on energy efficiency. One of its most important roles will be to coordinate the improvement of natural gas infrastructure. For the first time in Mexico, it will seek to create a technical consultancy practice for natural gas, which will have to be based on the EU model since it does not exist in the US. Madero Suárez added that this consultancy must, among other areas, figure out how to operate and maintain a supply nationwide during emergency times. Furthermore, CENAGAS will have to operate more than 9,000km of pipelines that currently exist, as well as ensure the steady growth of the network due to private investment. “We need to provide a social vision to investors so they know they will achieve their business goals.”

He moved on to the theme of bidding, stating that CENAGAS would oversee a market in which private players will feel confident. “Currently, they feel it is difficult to win bids in Mexico so CENAGAS must dissipate this,” he stated. “In operating the pipelines, we seek to maintain the existing best practices in Mexico and improve them. Our role as a regulator will see us make proposals and enact changes demanded by the private sector. CENAGAS has been preparing for five months to allow us to operate fully as soon as possible once we are officially launched.” CENAGAS has already signed contracts with PEMEX, leading to both legal and technical groups to be created between the two SOEs, allowing for data sharing, ensuring process compatibility, and the exchange of legal responsibilities between the two. Madero Suárez noted that such an exchange must be done skilfully to ensure no interruption of natural gas for users. “We have also evolved in becoming overseers of the CRE in getting the right certifications and in getting permits transferred such as those covering our operation of the pipeline network.”

Finally, he stated that CENAGAS will also be ensuring that the pipeline network is equally distributed among all states, not only in the north. For example, Chiapas has now built a Natural Gas Distribution Center, which is in line with CENAGAS' goal to oversee the expansion of natural gas infrastructure nationwide.

Moderator Tania Ortiz stated that the Energy Reform and the management of natural gas were vital for all Mexicans before asking Jorge Gutiérrez Vera to comment on the role of this hydrocarbon. Gutiérrez Vera explained that cogeneration or combined cycle cannot exist without natural gas, except for some small cases where biogas is used. However, he feels that cogeneration will never reach the level of natural gas and has no need to do so. PEMEX, CFE, and CENAGAS need to work together to foster cogeneration and trigeneration. If so, Mexico could achieve the best energy efficiency and least expensive power around from cogeneration, while diminishing greenhouse emissions. “We need to change the design of cogeneration schemes and make them more attractive,” said Gutiérrez Vera. “We have also benefited from the energy bank, but if this is removed, the cogeneration model will have to be remade to take this into account. If the bank no longer works, then the base users of cogeneration will have to participate in financing such projects.”

After Gutiérrez Vera finished, David Lozano took over to discuss the need for storage infrastructure along Mexico's natural gas pipeline network, which is currently very small. Lozano began by explaining that Mexico is in a pathfinder period. Natural gas has played a more prominent role in Mexico's energy mix when the sector was first opened to private investors. The expansion of the gas pipeline network is proof of this. Many factories and plans have also switched to natural gas, making them cheaper and cleaner. Supplying natural gas to industries and houses has also been a major achievement. “The Energy Reform provided the next stage of evolution, but future challenges lie ahead,” explained Lozano. “The creation of CENAGAS and its independent oversight of the pipeline network present a huge challenge. We still have a lot to do to bring natural gas, a clean fuel, to its full potential in Mexico.” He was happy that ever more pipelines are being put up for bidding, as this will generate trust among investors. The more industries rely on natural gas, the more its demand will keep improving and new supply will grow in consequence. “We must meet these new challenges head on as the Mexican government's vision for the country to become a global power by 2040 requires us to succeed,” he concluded.

Ortiz then stated that Sergio Beristain would discuss the 1995 reform attempts and how that experience influenced, positively and negatively, the current Reform. Beristain began by saying that the 1995 Reform was far more successful than commonly believed, although it still left Mexico far from its goal. “Since 1995, companies can enter the distribution market through successful bids, backed by the legal framework. But new challenges lie ahead. In 1995, the pipeline network, natural gas distribution and transmission were greatly developed,” he explained. According to Beristain, regulations back then posed an obstacle, stopping the harmonious development of the natural gas market. The existing laws allowed specific permits for this purpose but these were abused by energy giants that affected how distributors wanted to invest. “That has now changed as the law mandates very specific requirements to create harmony between transmission and distribution. The permits are now far more efficient.”

Beristain then asked how best to unite all these developments. For all natural gas projects to go forward as planned, all the new laws and organisms must collaborate, such as CENACE, CENAGAS, CFE, PEMEX. All this harmony must be done well from the start, he concluded.