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Analysis

Facilitating a Level Playing Field for Natural Gas

Wed, 01/21/2015 - 17:21

Natural gas has been favored in the reformed legislation due to its low CO2 emissions and rather affordable price. The idea is to supply the country with a fuel that will increase industrial production, thus helping economic growth. CENAGAS, the National Center for Natural Gas Control, will ensure a fair market for every company in the system and has been given a legal mandate to not favor any specific party and optimize competition, resulting in better pricing and efficiency. “We will break up the vertical integration that PEMEX had as the major producer, transporter and distributor of natural gas in the country, and we will open new opportunities for private investors,” tells David Madero Suárez, Director General of CENAGAS. He is confident that the transition of the operation of the natural gas pipeline network from PEMEX to CENAGAS will help to attract more operators. “I believe the industry will be really dynamic in the next two or three decades, and we expect many foreign companies to invest in the country,” he says, adding that there will be an expansion of the sector and more competition among operators. “CENAGAS will handle the maintenance of the network and for the first two years we will continue our operations through PEMEX, so there will be a smooth transition.”

Madero Suárez stresses how lucky Mexico is to be in a region with the cheapest natural gas in the world at the moment. The country is importing a substantial amount of gas and part of the National Infrastructure Plan is to increase the number of pipeline connections between Mexico and the US. Madero notes that companies are already building pipelines in the US to bring gas to the interaction points between both countries. He highlights the importance of ensuring that the country has the proper infrastructure to receive gas from Texas and deliver it to Central Mexico.

The country’s development strategy is highly focused on strategic pipelines, but this is not necessarily bad news for companies that want to build pipelines that are not considered in said plans. “From the 14 projects that we have at the moment, it is clear that Merida-Cancun and Baja California-Sonora will be commercial pipelines, while the initiative to take gas to La Paz by boat is currently being tendered by CFE,” explains Madero Suárez. “Furthermore, while some pipeline projects are not strategic, they are already being offered for other reasons, and more can be built as long as they comply with the regulations of CRE. Companies interested in building non-strategic pipelines should talk to CRE, get the necessary permits, and start building.” Madero Suárez points out that there is no reason to block their developments. “Neither SENER nor CENAGAS will stop anybody from building infrastructure in Mexico. This was already stated in the 1995 Energy Reform and what we are doing now is fixing the obstacles that did not allow that to happen in practice,” he asserts.

Although CENAGAS has ambitious plans, it will not cover storage projects during the initial five years of the ongoing development plan. “The organism decided to take on 14 projects from the National Development Plan and the National Infrastructure Plan, but none of these have to do with storage,” comments Madero Suárez. Most of these projects have already been assigned to CFE and PEMEX so that these can undertake the bidding process. However, he believes storage will bring the flexibility that the system needs. For this reason, CENAGAS should strive to develop plans for storage facilities for the short and medium-term. “We are going to analyze the geography and geology of the country and we are going to find the best depleted reservoirs, since these are the best options for storing gas. We will find other viable locations to convert into storage facilities,” he shares. Although gas production is expected to increase in Mexico, Madero Suárez believes the country will continue to be a net importer of natural gas. “In the long term, I see a good probability of major growth in the domestic natural gas supply. However, we are going to be conservative regarding the growth of the domestic supply. We want to avoid creating expectations about situations that could not materialize,” tells Madero Suárez. He is swift to note that, in addition to importing natural gas from the US, Mexico is also bringing in LNG, which is significantly more expensive. With this in mind, CENAGAS should support initiatives to minimize the structural dependence on LNG and ensure enough transportation capacity in the pipeline system to supply the entire country.