Social Impact Studies Hinder Sector Growth

Q: What is the main issue hindering the growth of the Mexican natural gas sector?

A: The sector is contracted due to various social issues that have impacted the completion of various pipeline projects in the center of the country. One is the marine pipeline being constructed by TC Energía that was scheduled to begin operations in 2019. The Tuxpan-Tula and Villa de Reyes-Tula pipelines have not been completed due to various social issues that have arisen. These projects have more than US$4 billion invested. We expect the government to support the sector by revising permits and legalities across all levels of government, as well as with ejidos, and to allow the construction of pipelines according to the price of the project. Costs are at US$520 per lineal meter of right of way for a pipeline when it cannot be more than US$52 to ensure the viability of the project. The development of the natural gas pipeline system began to see more challenges when social and environmental studies started to play larger roles in the projects. There needs to be more awareness of the importance of developing natural gas pipelines in Mexico and the subsequent impact on communities.

Q: What opportunities have opened in terms of operation and maintenance of natural gas infrastructure in Mexico?

A: In 2018, we closed contracts in San Luis de la Paz and Imuris, Sonora, which allowed us to add 39km of pipelines under this scheme. In 2019, CENAGAS is expected to tender interconnected systems to the national pipeline system for maintenance and operation and we are looking forward to participating. One of the main CENAGAS requisites for these tenders is that the companies are registered as accredited operators by CRE. GENSA operates more than 100,000 lineal meters of pipelines in Mexico. The country's national natural gas pipeline systems stretch 14,000km. The growth of natural gas in Mexico looks positive. GENSA has already started collaborating on stations in Sinaloa and Sonora and has forecasted over 1,000 stations in the next three years. In 2018, we began 40 projects and we see a future in the new Guaymas gas pipeline that will allow the creation of new pipes to better distribute natural gas. In the short term, we see problems in supplying the southeast with natural gas. GENSA has projects in the southeast, in particular in Chiapas, but because there is no natural gas in the area, we will have to postpone investment for two to three years. We are collaborating on over 120 projects in the area. GENSA also decided to start projects in the interconnections segment. We are already developing interconnections for transport pipelines. The first interconnection on which we participated was 42 4-inch interconnections in the Los Ramones pipeline for Engie. In 2019, we will also be working on pipelines in Culiacan and in Mazatlan.

Q: Why has GENSA decided to export the majority of its products to North and South America instead of keeping its production in Mexico?

A: We have a variety of pieces that are being manufactured in Mexico but of the 350,000 pieces manufactured, 50 percent is being exported to the US because there are not enough distribution network interconnections in Mexico. GENSA is exporting 250,000 pieces to the US and these are being sold through Home Depot in California. Our plan for 2019 is to expand into Texas and ultimately other states. As for our expansion into Colombia, the deficiency of natural gas in the country has pushed us to also slow down our expansion plans and instead bolster investment in Peru and Chile. We have strategic partners in Chile and in 2019 we plan to start three or four projects with them. We have over MX$300 million (US$15.8 million) invested in production plants and we are about to open a new plant in Apodaca, Nuevo Leon. This 10,000m2 plant will help detonate that industrial region by generating over 400 direct jobs through an investment of MX$250 million (US$13.2 million). In Mexico, only 8 percent of energy consumption is natural gas. Natural gas consumption can be broken down into 90 percent consumed by CFE, 6 percent the industry and 4 percent the general population. The best option is to export our products to more mature markets.

GENSA is a leading natural gas solutions provider that manufactures gas meter connections, risers and meter sets. It also offers maintenance, operation and construction of metering systems for natural gas.