Rogelio Montemayor
Director General
Strata BPS

Building Own Infrastructure a 'No-Brainer'

Wed, 01/18/2017 - 16:24

As production begins in earnest on the 25 blocks awarded in onshore Round 1.3, those operators could be considered something akin to test subjects of the reform as CNH, PEMEX and the rest of the industry come to grips with its newly liberalized status. Despite the opening, operators are still required to sell their natural gas production to PEMEX’s existing system at prices lower than the market and at the cost of efficiency, says Rogelio Montemayor, CEO of Strata BPS.

Because of this, PEMEX’s processing plants risk being forced out of business as private operators turn to building their own infrastructure as an alternative, he adds. “Right now, the price we pay to process our gas production through PEMEX’s plants would pay for construction of our own infrastructure in a year and a half,” Montemayor says. “It is a no-brainer for us.”

Selling natural gas production to PEMEX may have been convenient at the beginning of field operations but now that Round 1.3’s winners want to be serious market players they need competitive market prices and efficient processes

Strata BPS has been feeding natural gas into PEMEX’s system since production began at its Peña Blanca, Carretas and San Bernardo fields, which are producing the second-highest amount of natural gas from Round 1.3’s fields. Current production stands at around 8MMcf/d but Montemayor hopes to almost double this by the end of 2017. His goals align with wider industry efforts to reverse falling production, which stood at an average of 4.35MMcf/d in February 2017, a 16 percent drop from the same period in 2016.

Along with his aggressive production goals, Strata BPS’ CEO says he wants to change PEMEX’s mindset regarding its natural gas processing system. Since Strata BPS produces wet gas, it must be processed into dry gas to be sold on the wholesale market. The system in place means that they must sell the rights to the gas to PEMEX to access its processing system so it can reach the wholesale market.

“We only want to use the processing system, rather than selling our raw material,” Montemayor explains. But the payment rules within PEMEX are unclear because the NOC has never offered this service before and there is a general hesitance toward change for fear of breaking rules, he says.

The short-term incentives are few and far between for PEMEX to change its current natural gas processing system but Montemayor believes there are significant mid and long-term risks for the NOC if it fails to change its ways. “One of the Energy Reform’s objectives was to raise capacity usage of PEMEX’s processing plants. It is in its best interest to open up in the long term, before additional infrastructure pops up and it loses clients.”

More reforms are not necessary to achieve this, says Montemayor. The rules set out by the Ministry of Energy and CRE are clear on PEMEX’s role in the market as another competitive player but more should be done by these institutions to push the NOC to change. After nearly eight decades of market dominance, change will be a process requiring knowledge-sharing and patience, he adds. “Higher executives within PEMEX are aware of the importance of opening up, but the lower you go in the ranks, the more afraid people are of making decisions and getting in trouble.” For this reason, a lot of pushing from the top is required.