Mexico may postpone gas storage tender: Cenagas

Mexico's first natural gas storage tender scheduled for this month may be delayed ahead of the country´s political transition, gas pipeline administrator Cenagas.

"The tender is ready…the only thing missing is whether the new administration wants to continue with the project," Cenagas technical management and planning director Eduardo Prud'homme told Argus.

"We have to show [the new government] that the project aligns with the country's energy security needs," said Prud'homme, who confirmed that his department has yet to meet with the transition team of incoming president Andres Manuel Lopez Obrador, known as AMLO.

Under Mexico's gas storage policy published in March, Cenagas must keep at least 45 Bcf (1.26 Bcm) of gas in storage by 2026, and secure access to operational capacity through reservation agreements with LNG storage terminals.

The much-anticipated tender will cover storage in the Jaf field that has been deemed economically unviable.

The winner of the 30-year contract will be required to install 10 Bcf of working storage and all necessary wells, pipelines and compression systems in order to deliver 500mn cf/d over five consecutive days. Two new pipelines will connect the storage facility to both north-south and south-central pipeline flows operated by Cenagas. The gas must be delivered to the agreed injection point within eight hours of any Cenagas request and replaced following use.

The energy ministry will develop an emergency use policy that will identify the circumstances – such as hurricanes - in which the stored supply will be deployed.

The Jaf field, in Veracruz, produced dry gas until 2014 and is located 5.8km from the nearest gas pipeline operated by Cenagas.

The storage project is estimated to cost $240mn and take three and a half years to complete. Costs will be recovered through a monthly tariff capped at Ps75mn ($3.9mn) among system users and shippers. A separate tender will be held for gas supply once the storage tender is complete.

Contract terms are available for public comment until 10 September, after which the energy ministry would give the green light to launch the tender.

But the ministry may be reluctant to hold the tender prior to AMLO´s 1 December inauguration.

Mexico's oil regulator (CNH) has already postponed three scheduled upstream auctions in order to give him time to fulfill his campaign promise to evaluate all contracts awarded since a 2014 energy reform.

In the meantime, Cenagas is pursuing two options to fulfill the second prong of the gas policy - access to LNG storage capacity to be used as "storage of last resort," said Prud'homme.

Cenagas is seeking around 5 Bcf of LNG storage at the Altamira LNG terminal, preferably under a fixed access contract, but it is open to interruptible service given that capacity at the terminal is fully reserved, said Prud'homme.

The permit to operate the regasification plant and accompanying LNG storage facility at Altamira is currently held by Spain´s Enagas and Dutch logistics firm Vopak, which in turn have contracted out 100pc of the storage and regasification capacity to the distribution company Gas De Litoral, owned by Shell and Total.

Cenagas is also working with local company Sitsa on a potential project to build salt dome LNG storage infrastructure in the southeast, said Prud'homme.

Cenagas could go ahead with both projects if they prove viable, and would hold an open tender for LNG supply once it defines its storage options.

The storage is seen as a critical way to ensure supply security in the face of growing dependence on pipeline imports from the US.

Mexico imported 4.3 Bcf/d of pipeline supply in May, up 3.5pc on a year ago. LNG imports averaged 840mn cf/d in May, up 17pc from the 717mn cf/d imported in April and up 24pc from the 680mn cf/d in May 2017, according to energy ministry data.