Mexico eyes 2019 shift in natgas flows, contracts

Mexico's natural gas pipeline infrastructure is sufficient to meet demand in the mid-term, but the country will see a major reorganization of pipeline flows and transport contracts next year, says CFEnergia.

"I think Mexico has resolved its issues on import capacity of natural gas for the next ten to fifteen years, even with the worst case scenario with natural gas production," CFEnergia director Guillermo Turrent told Argus.

State-owned utility CFE has tendered 25 new gas pipelines in the last six years, with 17 pipelines in operation and the remainder to start service by next year. Once all pipelines are in service, import capacity will increase by 6.2 Bcf/d to a little over 11 Bcf/d, while total capacity in Mexico's network could reach 15 Bcf/d in 2019.

Natural gas demand in Mexico is expected to grow to 9 Bcf/d in the medium term, well below the 15 Bcf/d capacity in the expanded system, says pipeline administrator Cenagas.

Mexico imports over half of its natural gas as domestic production has declined following the 2014 energy reform that ended state-owned Pemex's monopoly on the oil and natural gas sectors.

Pemex produced 4.9 Bcf/d of natural gas in July, down by 6.9pc from July 2017, while Mexico imported 4.3 Bcf/d of pipeline supply in May, up 3.5pc on a year ago, according to the energy ministry.

While new pipeline construction is unlikely in the mid-term, Cenagas is planning interconnections between the system it operates, Sistrangas, and the CFE pipelines that will trigger a major change in gas flows and transport contracts.

"Next year the country is going to be in far better transport conditions; companies are going to have alternatives but we want to continue being an option," Cenagas technical management and planning director Eduardo Prud'homme told Argus.

One of the biggest adjustments will be in gas flows and transport contracts in the Gulf coast once CFE's 2.6 Bcf/d Sur de Texas-Tuxpan marine pipeline comes online by year-end.

Cenagas will build an interconnection between Sistrangas and the Sur de Texas-Tuxpan pipeline as well as a new compression station in Cempoala that will allow it to reverse flows on its current south-north link, sending gas to southeastern Mexico for the first time.

The amount of new supply the interconnection will bring into the national pipeline system will depend on contracts between interested companies and CFEnergia. Cenagas plans to hold an open season for transport capacity in the reversed pipeline. Companies that secure capacity will then be required to contract with CFEnergia separately for supply. The same process will be repeated for all new interconnections.

The changing landscape meant that 47pc of companies that renewed their gas transport contracts with Cenagas earlier this year opted for contracts of just one year, despite the option to contract for longer periods.

"Companies will probably have a mixed strategy. There will be routes where Sistrangas will be cheaper and other routes where CFE will be cheaper," says Prud'homme.

CFEnergia is also looking to balance its customer portfolio, currently 70pc weighted to CFE power generating divisions on a base load basis.

"Our target is to have 50pc of sales to CFE and 50pc to the market. We do not want to have all of our eggs in one basket," says Turrent.