Gas fundamentals point to savings, market development in Mexico

• CFE can save billions more dollars using natural gas – analyst
• ENGIE launches open season for existing, desired Mayakan capacity
• Latest CRE gas prices confirm high summer volumes, prices

HOUSTON (ICIS)–State-run utility CFE lost approximately $2.6bn in savings as it renegotiated natural gas pipeline contracts last year, but it is also poised to save billions more dollars in coming years if it commits to using inexpensive pipeline gas efficiently, according to independent analyst Rosanety Barrios.
Barrios calculated the average amount lost to delays from pipeline contract renegotiations by comparing what it would have cost to bring in 2.2 billion cubic feet (bcf)/day of Waha gas to Mexico via Ciudad Juarez and Ojinaga to prices for LNG, fuel oil, Henry Hub or Houston Ship Channel gas. Mexico can use a combination of these alternatives to meet gas demand for power generation, industrial and other uses.

Her analysis also includes estimates indicating the country could potentially save tens of billions more from 2021 to 2028 if it uses efficiently its new access to Waha gas.

Barrios, a former senior official at energy ministry SENER during the prior administration, said that based on her estimates of possible savings for the coming years, the country could substantially reduce expensive government power subsidies to CFE. The savings would come from reducing power generation costs by using Waha natural gas over re-gasified LNG, fuel oil or by transporting Houston Ship Channel gas from further away via pipeline.

Access to Waha gas was delayed in large part by months of negotiations Mexico’s federal administration demanded at the start of summer 2019 that were finalised in September last year. At the time CFE said in press releases it had estimated substantial savings from transport tariff renegotiations. Some gas market sources said they believed CFE’s savings calculations were inaccurate if analysed based on net present value, but the contracts have not been made public.

Mexico pipeline builder Fermaca was the last to finalise contract renegotiations for its pipelines which include the Wahalajara system. The system now appears to be fully functional though far from being used at full capacity. A company spokesman said on 20 October possible open season dates were not yet available.

MAYAKAN OPEN SEASON
The Mexico arm of French major ENGIE published a promised open season for the Mayakan system, which is expected to further efforts started in recent years to increase access to the gas-starved southeast through a combination of domestic production and south Texas gas imports.

The open season offers 0.755 million cubic feet (mcf)/day of firm capacity in the existing 777-km system. It also includes an opportunity to express demand for firm capacity to be added to the existing system and for a possible extension that would go from Valladolid, Merida to Cancun, Quintana Roo. The additional access to gas would allow private businesses to invest in energy-intensive projects and CFE to generate cheaper electricity for the peninsula.

Sources previously said a CFE-Pemex swap for gas near the Mayakan pipeline was further increased recently as the Cuxtal and Mayakan pipelines began operations earlier in October, with Pemex supplying natural gas to the two pipelines from the Cactus CPG. Sources said the Nuevo Pemex CPG was no longer supplying Mayakan as it had previously, but this was not able to be confirmed. ENGIE said in open season documents the Cactus CPG is the main source of gas for the existing Mayakan trunkline. The documents indicate the line is able to receive gas from the Ciudad Pemex and Nuveo Pemex CPGs.

ENGIE’s Mayakan is scheduled to begin receiving open season entries starting 26 October, and it is scheduled to notify participants and winners of open season results during the first half of January 2021.

CRE GAS PRICE HISTORY
The Cuxtal and Mayakan pipelines are in region six of energy regulator CRE’s natural gas price index, or IPGN in Spanish. Region six has had among the fewest reported regional transactions in 2020, with volumes marketed also among the lowest. This may shift over time with future infrastructure updates.

In the whole of the country, however, volumes of gas marketed in August have been the highest this year on seasonal demand and continuing post-lockdown economic recovery. Rising to more than 235m GJ, this represented a nearly 8% increase on the month.

The number of reported transactions and gas marketers also peaked for the year-to-date in August to 333 and 28, respectively.

The national average IPGN recorded by CRE for August was Mexican Pesos (Ps) 56.61/GJ ($2.67/MMBtu), up more than 16% from the Ps48.73/GJ recorded in July.

The IPGN is the average of prices of transactions executed by natural gas marketers in the Mexican market during a given month.

Additional reporting by Angeles Rodriguez