Editor’s Note: The Mexican Gas Price Index from NGI, a leader following reform of the Mexican natural gas market, features the following column by Eduardo Prud’homme as part of a regular series on understanding this process.
The opinions and positions expressed by Prud’homme do not necessarily reflect the opinions of NGI’s Mexican gas price index.
In August, Cenagas celebrated its seventh anniversary. The operator of the Mexican gas pipeline network Sistrangas is a key entity in the vertical disintegration of the Mexican gas sector and is now responsible for a significant fraction of the daily supply-demand balance for natural gas at the national level. In accordance with the provisions of the Hydrocarbons Law, Cenagas still has unrealized objectives. Among these, we can count the absence of actions to promote the development of the secondary capacity market, with market places, and to support the conduct of calls for tenders on projects of a strategic nature. , like several projects now sponsored by the Federal Electricity Commission (CFE).
Another omission concerns the concrete implementation of the gas storage policy, which was developed by the previous government but which was not explicitly canceled or reiterated by the current Ministry of Energy (Sener). No action was taken to ensure that the country had strategic or operational storage when the motivations that triggered such a policy became evident during winter storm Uri in February. Each of these objectives has the greatest relevance for building a modern competitive market, with liquidity and risk mitigation mechanisms.
However, its implementation requires going against the official discourse of the “rescue” of Petroleos Mexicanos (Pemex) and CFE, particularly on issues related to the placement of unused transport capacity and the creation of capacity on the road. new routes. The idea of promoting markets does not fit well with the intention of restoring the monopoly power of state-owned enterprises that is deeply rooted in government ideology. It is also not natural for this government to organize open seasons, because it prefers a public entity to keep control of the operations of large and small infrastructure projects. In addition, special attention to each of them requires an open, ongoing and engaged dialogue with the industry. What is desirable is that the construction and promotion of markets be aligned with the general interest and with practices that inevitably refer to international markets. This seems difficult as there are numerous occasions when President López Obrador has openly accused investors, both domestic and foreign, of being responsible for the serious problems of economic inequality plaguing the country.
Listening to industry and users was the intention of the creation of the Cenagas public consultations. Measuring the appetite for transport capacity and other services, knowing the variables that explain current and future demand, and probing the readiness of users to make long-term commitments to anchor new projects were the objectives of this study. exercise. Consistently, users have participated and expressed interest in additional provisioning and service options. So far, we have attended three public consultations during this administration, but it has yet to lead to concrete actions to respond to the expressed demand.
[Trusted Transparency: Mexican buyers and sellers are basing their natural gas prices off of NGI’s Mexico Gas Price Index. Read the analysis of our fifth survey of active players in Mexico, showcasing market-driven insights now.]
As for the capacity secondary market, it begins with limited transactions and through people-to-people interaction. Cenagas has in its nomination platform developed by the Quorum brand the possibility of adding a module that serves as an electronic platform for the allocation or release of capacity, which would provide liquidity with a greater number of transactions and would open bottlenecks business bottlenecks that hinder customer service.
Having a transport capacity, even temporary, is a necessary condition to make competitive commercial offers to customers. Providing an electronic solution for the secondary market with a capacity managed autonomously by the system manager would give a strong impetus to the creation of renowned gas wholesalers since it is a question of making information accessible to all, reducing costs. transaction costs and remove “personalization” from transactions.
But since December 2018, the independence of the Cenagas has been questioned. The management was filled by people related or having worked for Pemex. Many of his key positions are now held by people who were Pemex employees until recently. The latest market survey conducted by the Mexico GPI of NGI shows that since 2019, Pemex has recovered some of the ground lost since the opening of the market to independent players in gas transactions.
Regarding the creation of marketplaces, in its public consultation in 2021, Cenagas reiterated its intention to develop the Dulces Nombres project, in the vicinity of Monterrey. With this, it would seek to improve connectivity with the Mier-Monterrey system, operated by Kinder Morgan Inc. and achieve an interconnection between the Sistrangas and the Nueva Era gas pipeline. The NGI survey also shows user interest in a Monterrey pricing point.
This idea has been around for several years and clashes somewhat with the basic premises expressed in the Cenagas presentations: its main challenge is to no longer depend on the United States and to achieve energy sovereignty.
Concretely, if the intention of the energy policy is for Pemex and CFE to be the dominant commercial companies on the Mexican market, the existence of a market center in which the volumes of the various basins of Texas converge loses its relevance for the market. price formation and to encourage more transactions. This also applies to other points identified by users in the NGI survey. In Tuxpan, CFE will have a strong position with gas transported by the maritime pipeline and in Guadalajara CFE also has monopolized capacity in the Fermaca gas pipeline carrying gas from Waha. The question of the creation of a hub shows, on the one hand, that the interests of users are not aligned with those of the government and, on the other hand, that Cenagas has not acted to meet its obligations.
The data revealed by the NGI survey tacitly shows the positive results of the creation of Cenagas in 2014. More than 30% of the transactions reported in the survey are attributable to independent marketing companies and a little less than 15% to users. industrial. These figures were simply impossible before ensuring free access to the integrated system managed by Cenagas.
Gas prices in Mexico, despite the prevailing rigidities, are beginning to show diversity in their composition or formulation. The direct sale price of Pemex (or VPM by its Spanish initials) was the only economic signal around gas before 2017. The entry of new participants with firm transport contracts valid for more than one year allowed the occurrence commercial commitments with fixed prices linked to indices different from traditional markets. It is clear that the agents took advantage of the opportunity offered by the opening, even though almost three years have passed without deepening the liberalization measures. Gas buyers understand that not all roads go through Pemex.
According to the NGI survey, only 13% of marketed gas is traded at VPM price. The market’s growth expectations are a consensus of its participants. According to the NGI survey, imports will also continue to grow. Many companies want to consume natural gas for the first time. Consumption expansion plans abound. There is a demand. The problem is that specifying supply alternatives is not always an easy task, even when users contact private suppliers.
President López Obrador’s official speech is that private agents are selfish entities that do nothing to improve the conditions of fuel supply. The only interest of the private sector is to profit without worrying about security of supply, the story continues. The truth is that in expanding coverage, public officials have a lot of responsibility. The lack of available capacity for new users is due to the absence of open seasons or new general capacity allocation processes by Cenagas despite the fact that the interconnections of Montegrande and Zapotlanejo have added transmission capacities in a very significant. The international interconnection of Camargo where phase I of Ramones begins, which is part of Sistrangas, has not been fully used for months. This injection site could be reassigned. The supply alternatives are constrained by an omission in the actions of the independent manager, and not by a lack of professional competence.
Prud’homme played a central role in the development of Cenagas, the national gas pipeline operator, an entity formed in 2015 as part of the energy reform process. He started his career in the national oil company Petróleos Mexicanos (Pemex), worked for 14 years at the Energy Regulatory Commission (CRE), becoming Chief Economist, and from July 2015 to February was ISO Director of Cenagas, where he oversaw the technical, commercial and economic management of the nascent integrated natural gas system (Sitrangas). Based in Mexico City, he heads the Mexican energy consultancy firm Gadex.