The reform of Mexico’s energy sector currently being undertaken by the government of President Enrique Pena Neto has captured much global attention, mainly because of the significant changes proposed in the upstream sector.
Less well known, however, is the potential reform of the country’s mid and downstream markets, where the monopoly enjoyed by state oil and gas company Pemex is set to end, and the industry is poised to open to greater private sector participation.
Under the proposals, a new midstream entity named Cenagas will take control of the existing pipeline network owned and operated by Pemex. As well as administering the network, Cenagas would be able to charter out operation and capacity in pipelines, as well as take decisions over the maintenance and expansion of the existing pipeline network.
Under the Mexican government’s plans, Cenagas would be charged with encouraging greater private participation in the network. Authorities also envision setting a target for Cenagas to double the number of companies involved in transport and distribution activities by the end of the decade.
Some of the most active companies in the mid and downstream sectors of Mexico’s gas industry, besides Pemex and Mexico’s state power utility CFE, include Paris-headquartered GDF SUEZ, Spain’s Gas Natural Fenosa and US-based utility Sempra Energy.
Pipelines would be subjected to open season rounds, through which idle capacity will be offered to third parties. Concessionaires will be awarded capacity on the premise that they are not involved in distribution activities.
“To promote competitive pricing and full competition, rules establishing a clear separation between the activities that each participant plays will be included,” according to the Mexican government.
Cenagas as an entity could be operational before the end of this year, a source in Mexico told ICIS, subject to the approval of required legislation.
Authorities are hoping to secure passage of the legislation before the country’s political representatives break for the summer in July. However, delays may postpone the passage of such legislation until later in the year.
Robust Mexican demand for gas
Gas supply in Mexico has become an increasingly important issue given the recent trend of growing demand and falling domestic production.
Pemex and CFE, as well as a small number of outside companies such as Sempra Energy, have ramped up imports of both LNG cargoes and pipeline gas from the US.
Last year, Pemex and CFE combined to purchase a total of 31 spot LNG cargoes for delivery to the country’s Manzanillo import terminal over the course of 2013 and 2014.
Pipeline imports from the US increased by 50% from 2009 to 2013 to average 1.8 billion cubic feet (bcf)/day – 51 million cubic metres/day – over the course of last year.
Imports from the US are expected to reach 3.8bcf/day by 2018, according to the estimates from the national energy ministry, while LNG imports are expected to remain constant at roughly 0.7bcf/day.
However, delays in the completion of key pipeline projects could lead to further spot LNG acquisitions for the Manzanillo terminal over the course of 2015, according to Americas-based sources.
CFE currently receives term LNG volumes from Anglo-Dutch major Shell at Manzanillo and from the capacity holders of the Altamira terminal on Mexico’s Gulf coast, Shell and France-based Total. James Fowler