Is the Natural Gas Market in Mexico Truly Open?

“It would be nice to say the gas market is completely open, but the private sector is only allowed to invest in the distribution and transportation of gas, and even though 23 di†erent companies have invested around US$5 billion in gas infrastructure, further market opening would create more opportunities to expand the natural gas industry in Mexico,” says Agustín Humann Adame, Executive President of the Mexican Natural Gas Association (AMGN).

Since AMGN was created in 1988 to promote the interests of the Mexican natural gas industry, it comes as no surprise that the AMGN played a key role in the liberalization of the country’s gas market. “We worked with the CRE to establish all the necessary regulations. Before the liberalization there were only a few Pemex companies distributing natural gas in Mexico; one was in Mexico City and the others were in Queretaro, Piedras Negras, Ciudad Juarez, and Monterrey. However, after the liberalization the CRE opened participation not only for the distribution of gas, but for transportation as well, which led to the awarding of 24 distribution and transportation contracts,” explains Humann Adame. Most of the contracts were awarded to foreign companies. This happened, says Humann Adame, because of the lack of Mexican bids for the contracts and because the CRE was more focused on increasing the much-needed natural gas distribution capacity rather than fostering the growth and expansion of Mexican gas transportation and distribution companies.

Currently, most gas transportation and distribution activity occurs in northern and central Mexico. “This is the case because on the entire Pacific coast there are no pipelines. Four pipelines that were awarded to Sempra Energy and Transcanada, are currently under construction in this region,” explains Humann Adame.

Due to security reasons, many companies have been reluctant to work in certain parts of the country. Humann Adame believes that “those companies that are awarded contracts by the CRE and will not fulfill them or postpone them for security reasons, should allow others to seize the opportunity because I truly believe security is not a problem in the construction of pipelines in Mexico.”

The need for pipeline infrastructure is not the only challenge to the growth of the industry; the subsidies for LPG gas o†ered by the federal government are hampering the growth and expansion of the conventional gas market. “The AMGN is constantly lobbying against the subsidy LPG currently receives from the federal government, since it is not good for competition. However, we are confident and have high expectations that the new government will change these outdated practices,” explains Humann Adame.

Besides lobbying and attempting to reduce or eliminate the federal subsidy on LPG gas, Humann Adame states that the AMGN is constantly working to promote the benefits of natural gas to the general public through local campaigns and via radio, television, and printed material. “The first and most important benefit is safety, since natural gas is never stored in compressed tanks; and the second is that you pay your bill post-usage, so you have vast gas availability that you can use at your own discretion, without ever having to worry about storage levels because it flows continuously through pipes,” explains Humann Adame.

Even though LPG gas and the eventual production of shale gas in Mexico might a†ect natural gas prices, Humann Adame believes the natural gas market is going to grow because companies are finding alternatives to their dependence on pipeline infrastructure and starting to find their own transportation solutions, such as transporting by truck. “In Mexico we currently have two new companies that are transporting natural gas in trucks; one in Morelos and one in the north, which is a great short-term solution to the lack of pipeline infrastructure.”

AMGN’s Executive President understands this is just a short-term solution and that in order to fully address Mexico’s transportation and distribution problems there needs to be more market openness: “We feel the intense interest of foreign and domestic investors in the Mexican natural gas transportation, distribution, and storage business, which could result in various benefits for the country, such as more jobs, an increase of natural gas production, and a decrease in natural gas prices.”