Mexico asks to rework natgas line contracts: AMLO

Mexico's power company CFE wants to renegotiate the terms of natural gas pipeline contracts that private companies signed with its trading arm CFEnergia since 2012, President Andres Manuel Lopez Obrador said today.

"We are asking companies that have agreements with CFE ... to review contracts," Lopez Obrador said after highlighting that his administration will respect the rule of law. "Under no circumstance will it be done by force. We want it to be a voluntary participation — via convincing [companies]."

The 23 contracts — plus one contract not exclusive to CFEnergia that imports US gas and caters to private offtakers — reeled in $14.1bn in investments from a dozen different pipeline companies over the past five years. Mexico's former administration sought to expand Mexico's natural gas transport capacity in its domestic pipeline network and increase import volumes from the US. The contracts were awarded for pipeline design, construction and operation as well as for CFE to be the main offtaker for 25 years.

The Lopez Obrador administration says all signed contracts amount to losses of Ps164.2bn ($8.5bn) and added that it had to pay Ps5bn last year from commitments from delayed pipelines plus that it expects to pay another Ps16bn until completion if contracts are not renegotiated. CFE director Manuel Bartlett said an additional $70bn from acquired debt for the pipeline projects would still have to be paid over the next 25 years, of which $21bn will be from commitments on delayed pipelines over time.

IEnova — the Mexican unit of Sempra Energy — and TransCanada currently hold the largest amount of contracts with CFEnergia, the natural gas trading unit of CFE founded in August 2015. Each company holds five individual contracts and a shared one for the 2.6 Bcf/d Sur de Texas-Tuxpan line due to come online soon.

The previous administration's plan was also to move toward more natural gas-fired generation — which the incoming administration has criticized since it took office. CFE still dominates power generation in Mexico despite the energy reform.

Mexico imports over 5 Bcf/d from the US via pipeline, or more than 80pc of over 6 Bcf/d of total gas imports. CFEnergia dominates trading in the Mexican natural gas market and imports about 80pc of the total to meet nearly 8 Bcf/d of national demand through pipeline network Sistrangas.

Sistrangas has an national operating capacity of some 8 Bcf/d, which is expected to increase over the coming years to some 12 Bcf/d once at least seven delayed pipelines come online — some of which are TransCanada and IEnova contracts.

Lopez Obrador and CFE director Manuel Bartlett criticized the seven delayed pipelines, saying that companies are charging while pipelines are incomplete and accused IEnova chief executive Carlos Ruiz Sacristan of taking advantage of his former posts at energy-related government positions when he entered the company. IEnova said it acquired all contracts transparently and that Ruiz only held a minor energy post Pemex for 28 days in 1994. Sacristan was former president Ernesto Zedillo's transport and communications minister (SCT) from 1994 to 2000.

Beyond CFEnergia's natural gas contracts, it also holds a two-year contract awarded last year by hydrocarbon regulator CNH to market natural gas acquired from Mexico's post-reform production-sharing agreements with private companies.

CFE's ability to trade natural gas since the reform, not only imports but also domestic production from Pemex and private companies, has been lucrative in recent years. CFE reported profits from natural gas sales of Ps$40.4mn from January to September of this year, up from Ps$11.1mn and Ps$1mn during the same period in 2017 and 2016, respectively.

But CFE recently announced that it would centralize fuel buying, which is expected to go in line with broader state control over Mexico's largest power company.