Mexico is paving the way for natural gas to become the country’s standard, cost-competitive and environmentally friendly fuel source for bolstered economic activity, panelists told the audience at the Mexico Oil & Gas Summit 2018 at the Hotel Sheraton Maria Isabel in Mexico City on Wednesday. Representatives from CENAGAS, CRE, the Ministry of Energy and ATCO gathered to discuss the landmarks achieved for natural gas supply, demand and infrastructure as Mexico moves toward its long-term sustainability goals and the increasingly relevant role natural gas will play in that regard.
“The price liberalization for natural gas that CRE approved in mid-2017 ended the difficulty of competing with PEMEX. This shift allowed the identification of scarcity locations and to act on that, a significant advance for a country that spent 20 years in transition conditions with no additional infrastructure, subject to production drops and supply cutoffs,” said Rosanety Barrios, Head of Political Units of Industrial Transformation at the Ministry of Energy. This milestone enabled the identification of important regional gaps in terms of natural gas pricing, as Mexico’s southern region primarily depends on national production, given the lack of infrastructure available to import the fuel while the country revamps its production capacity. “We provided an pulse to an already over-diagnosed market with well-known issues. The previously used first-hand sale price methodology generated greater costs for Mexico’s southern region, inhibiting PEMEX from producing additional gas,” said Guillermo García, President Commissioner of CRE. With the entry of a permanent regime supported by CENACE, the Ministry of Energy and constant consultations with the private sector, CRE’s regulatory modifications unlocked 40 percent of national natural gas consumption to be procured by private suppliers, with additional pipelines in operation.
For CENAGAS’ third revision of the Five-Year Plan 2015-2019 authorized in March 27, 2018, CRE asked for different technical alternatives to bring natural gas to Mexico’s south and reach as far as the region’s homes. “We must keep in mind that 15 percent of Mexico’s households still rely on lumber, posing a health hazard, and leading to CO2 emissions and high-cost issues,” García said. Answering the call, CENAGAS is developing a bid to reconfigure the Zempoala, Veracruz compression station. “It includes two compression nodes and new capacities of natural gas flow regulation and metering to direct Zempoala’s compressed gas toward the southern region of the country,” said David Madero, Director General of CENAGAS.
Natural Gas Storage
Natural gas storage in Mexico presents two advantages: it fosters energy security for the country and an attractive business opportunity for private companies specialized in such a service. “The country showcases a major opportunity in natural gas storage but projects remain developed on the other side of Mexico’s northern border. Regulatory stability, coupled with an increasing penetration of natural gas in the market as more expensive options such as diesel and fuel oil are replaced can detonate a mature energy storage niche in Mexico,” said Elie Atme, Senior Vice President in Business Development of ATCO. Mexico’s private players want in on this window of opportunity and CENAGAS knows it. “Our data room now includes four depleted deposits and their inherent static and dynamic models. Interested companies are analyzing the information with the objective of succeeding in their nomination process by the end of July 2018 based on viable projects to store up to 10 bcfs in any of these deposits,” Madero said.
Barrios insisted on continuing efforts to recover the country’s national natural gas production, even though results will take time to manifest. “The only way to attend increasing demand is ensuring imported gas arrives on time, pipelines conclude successfully and the regulatory process in land access is improved. The new administration led by President-elect Andrés Manuel López Obrador was provided the sufficient voter-credibility to legitimately approach state and municipal governments to discuss the benefits of natural gas and its capacity as an economic trigger,” she said. “We need to bring natural gas closer to high-consumption points, which can take different forms. Chief among them, fueling public transportation with natural gas and residential use. To date, only 7 percent of residential consumption is fueled by natural gas, versus 70 percent of LPG. Is it justified that megalopolises have to deal with pipes?” she asked. Barrios invited the public and private sectors to reflect on reducing gas consumption costs in a natural way, without state intervention through subsidies.
Thinking natural gas infrastructure, CRE’s President Commissioner highlighted the social component of such developments. “At least two projects are dealing with significant social issues. We are developing the tools to address social requirements and develop human talent to answer them. So far, CRE has signed 17 agreements with public universities to train future anthropologists and sociologists to successfully deal with these issues,” García said.
Madero called on López Obrador’s impulse to tackle inequality to capitalize on the social project framework developed during the incumbent administration. “We need to close agreements with the Ministry of Finance, the National Infrastructure Fund, support the development of the Special Economic Zones (ZEEs) and zones with less productivity in general to bring natural gas to their doorstep and obtain more productive projects, resume economic growth and address our lagging education system.”