David Madero Suárez
Director General
View from the Top

Technical System Operator Priositizes Certainty

Wed, 01/20/2016 - 13:02

Q: What have been some of the key aspects in the development of the National Pipeline System that have contributed to a steady natural gas supply in the country?

A: The National Pipeline System continues to be heavily invested in, and I want to emphasize the fact that we have increased the compression capacity of the system, which allows for a larger transportation capacity north to south. We are simultaneously working on the final details on some compression stations that run south to north, providing us with greater operational flexibility. These actions, in conjunction with the start of operations of the first phase of Los Ramones, have enabled a larger transportation capacity of natural gas shipped to the country’s central region. Consequently, we are able to better manage the supply according to the demand and prevent situations that lead to critical alerts. The new institutional framework and the creation of CENAGAS have led to a multi-institutional group where the involved parties, including the Ministry of Energy, CRE, CENACE, and CENAGAS, communicate on a daily basis. This eases the decision-making process to meet the target range needed to ensure continuous supply and consider the necessary precautions in case of a domestic shortage.

Q: What are some highlights of the Natural Gas Pipeline Five Year Plan?

A: Firstly, the Natural Gas Pipeline Five Year Plan aims at ensuring that we will bring a sufficient natural gas supply into the country, for which there will be a considerable increase in the importation capacity. There will also be projects that will increase the transportation capacity from the north to the south, and from the Gulf of Mexico to the western region. This will ultimately create a greater level of interconnection, and thus flexibility in the system, allowing us to effectively supply the country.

The Plan mentions the construction of an additional 5,000km in the network, but there are also investments that were made before 2015 and segments under construction that are likely to be completed in 2016. The majority of the 5,000km detailed in the Five Year Plan is being tendered or is at the project-planning stage, and they will entail investments close to US$980 million. The developments included in the Plan and the projects that are currently receiving investments will increase the pipeline network from 12,000km to 20,000km.

The Plan is the most important action we have carried out to give certainty to investors. A first version was published in October 2015, and is currently undergoing revisions so that an updated version can be issued during the first half of 2016. Since the Plan clearly states the projects that are going to be developed and the order in which they will be carried out, giving companies a clear view of the way in which the National Natural Gas Pipeline System will be expanded, it can also bring certainty to companies that use natural gas in electricity generation and industrial processes.

Q: What are some challenges CENAGAS will face in the short term, particularly regarding capacity?

A: The main challenges for CENAGAS are granting PEMEX and CFE the capacity rights they are entitled to by law determining what will be done with the acquired rights that the regulatory authorities recognized under the previous regime, and finally, implementing an Open Season scheme so that interested parties can obtain capacity in the pipeline transportation system. Once this happens, those companies will be given preference in terms of capacity, while other companies will remain under interruptible transportation conditions, which will ultimately create the right incentives and send the appropriate signals. In parallel to the modernization of the transportation scheme, there will be a need to open and modernize natural gas pricing. Although this is beyond CENAGAS’ scope, we believe it is an essential component that will complement the total opening of the sector.

Q: How has the transfer of PEMEX natural gas assets to CENAGAS advanced?

A: The assets have been successfully transferred to the technical system operator. The PEMEX Gas and Petrochemicals Board approved this transaction in October 2015, and this was later ratified by the PEMEX Board of Directors, which in addition to the assets, authorized the transfer of rights and obligations related to PEMEX’s duties as a shipper, starting on January 1, 2016. CENAGAS is now operating as stated in these agreements, and it also signed a contract with PEMEX, in which the State-owned company will operate the transferred assets in their entirety on behalf of CENAGAS through a one-year-contract. We signed eight administrative contracts, with the largest one being that for operation and maintenance. Through these contracts, we ensured that we can continue providing uninterrupted services amid the transfer of assets with PEMEX acting as a service provider. At the end of the one year operations contract, CENAGAS will look for private companies interested in providing these services so that we can operate in the most efficient and safe manner. This does not mean that we want to part ways with PEMEX on January 1, 2017, but it means we want to look for private participation to make the sector competitive and generate points of reference regarding prices, costs, and quality.

Q: What are the financial implications of the amount CENAGAS will pay PEMEX for the transferred assets?

A: CENAGAS will pay PEMEX the recorded value of the investments made for these assets, according to CRE’s accounting registry. The technical system operator will gradually pay MX$1 billion, a figure that will decrease as the assets depreciate. For CENAGAS, this means that we will own infrastructure and assets, and we will have to comply with the payment conditions, which is a liability. CENAGAS started out with a small estate, but we expect growth. The shipper side of CENAGAS, which in this case has to be seen as separate from the technical system operator, is the one that will have to deal with the transferred assets and the payments these entail. The operator side, which is in charge of planning, tendering, and carrying out daily management operations in the system, will not be affected by the aforementioned payments because inheriting ownership of the pipelines will be profitable.

Q: How is CENAGAS preparing for the tenders it will launch in 2017?

A: By August of this year, CENAGAS needs to obtain the approval of its Administrative Board and the Ministry of Energy so that it can be in charge of tendering storage and transportation projects that the Ministry deems strategic. In order to prepare for this process, we are already working on the contract models and the tendering bases, as well as creating the internal organs we will need to conduct a transparent bidding process. The contracts should give certainty to participants in the sense that they will not be disqualified for a non-anticipated technical or financial issue. In turn, this should generate a favorable environment where there is competition surrounding the projects, which will enable us to provide the lowest possible prices and tariffs. CENAGAS is working on this and it will have administrative councils to test these documents with the ultimate goal of obtaining approval from its own Administrative Board. The law states that CENAGAS has to demonstrate financial, technical, and human resource capabilities in order to carry out tendering processes, and we will prove these capabilities by June so that we can obtain the Ministry of Energy’s authorization in August, and begin conducting these processes in late 2016 or 2017.

Q: How is CENAGAS working to become an international benchmark as a technical system operator?

A: Our goal of becoming a reference implies being internationally recognized as a trend-setting technical system operator, and it is too soon to say that CENAGAS meets this requirement, so we have made this a ten year objective. For us it is clear that CENAGAS has to work alongside the regulator to become a strong system operator with the ability to influence the decision-making processes in the sector, leading to a reliable system. Being at the forefront entails having outstanding tendering practices, which we have not yet had the chance to demonstrate, and having the necessary SCADA systems not just for our pipelines, but for every pipeline system that is interconnected to ours. This would make us a powerful force that is capable of redirecting flows in the system in order to achieve the most secure and efficient supply, which will happen in the medium and long term. Nonetheless, we are confident that we can create an efficient natural gas system for the country, and this is where our biggest challenge lies.