/
Analysis

Natural Gas, Energy Source of Change for Mexico

By Peter Appleby | Tue, 01/21/2020 - 15:45

The new administration’s overarching aim of delivering a revitalized national energy sector able to support the energy demands of its growing population requires the support of a comprehensive natural gas pipeline network. Mexico’s recent progress made in natural gas pipeline infrastructure — from 11,347km of completed pipeline in 2012 to 15,986km in 2018 — was continued in 2019 as a further 1,224km of pipeline was finished, while another 1,679km remains under construction.

The cultural shift from reactive to preventative maintenance on the legacy pipeline infrastructure of the country remains a prominent theme within the sector. Jan Frowijn, Managing Director of Mexico and Central America for Rosen Group, whose company has been performing In-Line Inspections and integrity assessments on pipelines as part of the CENEGAS Five-Year Plan, believes this shift is taking place. “To make the transition from reactive to preventive maintenance, the first step is to work toward a risk-based integrity management plan, inspection and assessment of the state of the assets,” he says.

There is an industrywide recognition that the implementation of advanced technologies like Big Data can support the upkeep of Mexico’s pipelines. Joel Salinas, Director General of SCR Mexico, highlights the specific benefits. “The application of these new technologies means the pipeline network requires less maintenance, which is especially positive because it is difficult to conduct pipeline inspections due to increased insecurity.” However, Frowijn believes that the uncertainty of the last year is likely to reduce the willingness of stakeholders to invest. “Although there are some project-based exceptions, the uncertainty in the market increases the likelihood of companies sticking with what they are familiar with, rather than looking for more advanced technologies. With some exceptions, the introduction of the latter tends to be perceived as an investment risk,” he says.

THE ROLE OF NATURAL GAS

According to Héctor Moreira, Commissioner of the CNH, the country’s geographical and geological good fortune has resulted in the national development of natural gas being stunted. With the administration’s pursuit of energy sovereignty, its recent history must be reversed. “Mexico’s relationship with natural gas is characterized by its location. The availability of cheap natural gas, together with the existence of oil in Mexican territory, has offered little reason to invest in Mexico’s natural gas industry. This underinvestment has led to underdevelopment,” he says. The profitability of oil has delivered great economic benefits for the country but as production waned, little was done to build the role of natural gas. “Mexico was originally importing 20 percent of its natural gas needs. Today, it imports 70 percent: the country depends more on US natural gas than Japan, a country with no natural gas reserves. While Japan has various providers, Mexico has only one,” says Moreira.

With the national demand on natural gas set to increase 20 percent between 2017 and 2031, from 8,017MMcf/d to 9,659.9MMcf/d, production must grow in kind for Mexico to be self-sufficient. However, the opposite situation appears likely to take place. According to SENER, the importation of natural gas will grow 180 percent from 2012 to 2022, while national production will drop within the same time frame. Whereas in 2012 there were 16 interconnections for importing natural gas from the US, as of October 2019, there are now 24.

AREAS IN NEED

Following the cancellation of the Special Economic Zones (ZEE) intended to develop southeastern Mexico, the need to propel the economy of these areas remains. Meanwhile, the administration has stated its intent to equalize the disparity between accessing reliable energy resources in the north of the country and that of the less infrastructurally-developed south. Moreira believes natural gas could support both these aims. “Studies show that Mexican states with natural gas develop faster than those without. This means that states like Oaxaca and Chiapas will struggle to grow economically if the federal government cannot deliver natural gas to them,” he says.

However, the challenge of transporting fuel remains. Unyielding terrains, high CAPEX requirements and low cost-efficiency present clear obstacles to justify extensive pipeline projects. According to Alberto Escofet, Mexico Country Manager of Enagás, a good remedy is alreadyavailable. “A fantastic resource that can address these and other zones lacking attention due to factors such as geographical isolation or infrastructural marginalization is virtual pipelines.” Virtual pipelines are already at use in Mexico in states including Quintana Roo, Yucatan and Campeche. The flexibility the system provides allows natural gas to be delivered beyond the reach of conventional pipelines and dramatically reduces the investment a conventional pipeline requires.

BRIGHT FUTURE FOR NATURAL GAS STATIONS

Mexico is at an energy crossroads. Its environmental responsibilities as part of the Paris Agreement demand that the government take steps to reduce national CO2 emissions. Yet central to the new government’s plan is the delivery of a cheap and accessible energy price for Mexicans nationwide. For some stakeholders, natural gas is the only fuel source that can attain both these aims simultaneously. Luis Echavarría, Director General at Mexican company EncoGNV, believes increasing the number of natural gas stations, which stands at only 35 to service some 25,000 natural gas vehicles, offers Mexico the chance to reduce pollution problems while its population can access cheaper fuel. “Natural gas reduces CO2 emissions by 70 percent in comparison to diesel and is 50 percent cheaper per kilometer than traditional fuels,” he explains. However, the incongruent history of natural gas in Mexico’s separate regions poses problems for its growth. Two well-publicized natural gas disasters, the last of which occurred in 1992, color the perception of the fuel as dangerous. While Echavarría understands the position, he also believes it to be outdated. Central and southern Mexico, where natural gas use is not as widespread, have a negative perception of the fuel. In northern Mexico where natural gas infrastructure has been historically available, the perception is very different. “We need to change the public’s minds because natural gas really is an improvement. This would allow us to advance with building more stations and overcome the main obstacle that we face: the lack of national coverage. When more natural gas stations are available, the shift to natural gas will become more attractive,” says Echavarría

Peter Appleby Peter Appleby Journalist and Industry Analyst