Mexican IPPs to sit out Sistrangas open season

With only a month to go before the launch of Mexico’s first open season for natural gas transport capacity in the Sistrangas national pipeline grid, the status of independent power producers (IPPs) and their ability to participate in the round has become clearer.

These companies, which operate in Mexico under a power purchase agreement (PPA) with the country’s state power utility CFE, will not participate in the round one capacity allocation open season currently planned for launch in November.

Instead, IPPs will continue to operate under existing supply agreements with either state oil company Pemex or CFE. These contracts, which are often up to 20 years in duration and, in many cases, are linked to the power offtake agreement in place between the generator and CFE, recognise the consumer’s right to ownership of the firm demand volume covered in the contract.

IPPs have the right to cancel that contract and take firm control of that capacity at any time, a market source told ICIS. In such a scenario, the IPP can chose to handle the capacity internally, or assign the capacity to a third-party wholesaler charged with managing the client’s needs as part of a wider portfolio.

Approximately 1.6 billion cubic feet (bcf) – 45.3 million cubic metres – per day in Sistrangas capacity has been reserved for IPP consumers. Combined with capacity allocated to Pemex and CFE to meet their own needs, this will mean that roughly 4.1bcf/day of the 6.2bcf/day total Sistrangas capacity will be pre-allocated prior to the open season.

The remaining capacity will be made available to two separate groups through the open season: acquired rights holders, which are large consumers such as industrial clients and local distribution companies; and third parties looking to contract gas capacity for the first time.

Acquired rights holders are understood to have total demand in the region of 2bcf/day.

Once the open season process has been completed, successful companies will be able to participate in a second auction process through which idle capacity in the US pipeline system held by CFE and Pemex is opened up. (See MER 12 October 2016)

The process will be overseen by Mexico’s energy ministry SENER and organised by Sistrangas system operator CENAGAS, which will post information regarding idle US capacity on an electronic bulletin board.

The auction will be held between the closure of the open season and the launch of the new gas market, the source said.

Open season dates

The official timetable for the open season process was announced by CENAGAS on 26 October, envisioning the round’s launch on 28 November, with companies able to submit offers through to 26 December.

Offers will then be evaluated over the first three weeks of January, before results are announced on 25 January. Under the current timetable, contracts will be signed over February, with the market theoretically beginning operations on 1 March 2017. However, market sources now suggest that this start date could be pushed back until early April, allowing more time for US capacity allocation to be completed. Contracts will have a one year term.

A second open season, offering participants the right to secure capacity rights for terms of up to three years, is planned for the third quarter of 2017. Companies successful in the first open season will be able extend their contracts on the same economic terms without participating in the second round.

Alongside the timetable, CENAGAS has published guidelines for open season participants, model contracts and credit solvency requirements. Transport tariffs and the full list of 27 Sistrangas injection and 113 extraction points which open season participants will compete to get access to have also been published on the transmission system operator’s website.

In anticipation of the open season launch, CENAGAS published on 21 October an invitation for companies interested in taking capacity in the Salamanca-Lazaro Cardenas pipeline, which forms part of the Sistrangas network and runs through the states of Guanajuato and Michoacan, to submit estimates of their maximum potential demand.

CENAGAS will use this information to evaluate the need to expand the pipeline’s capacity as well as potentially adding new infrastructure in the region, a market source told ICIS.

Companies participating in the process should submit demand estimates to CENAGAS before 11 November, according to the filing in the federal gazette. james.fowler@icis.com