“A lot of the potential developments that nearshoring will bring are going to need access to natural gas,” Diana Pineda, a partner at Gónzalez Calvillo law firm in Mexico City, told NGI’s Mexico GPI. “And the truth is, we’ve now gone several years without a new natural gas pipeline.”
Pineda is one of the leading legal experts and voices in the Mexican energy industry and has extensive experience in oil and gas projects, litigation and dispute resolution. During the last ten years, Pineda has represented and counseled major international oil and electric companies seeking to invest in Mexico.
She is also a member of Voz Experta, an initiative to promote the work of women experts in the energy industry, and has worked as a professor at the Universidad Iberoamericana in Mexico City. Pineda holds a master’s degree in negotiation and conflict resolution from Columbia University in New York, a postgraduate degree in Civil Law from the Escuela Libre de Derecho and an undergraduate degree in law from the Universidad Anáhuac.
Editor’s Note: NGI’s Mexico Gas Price Index, a leading tracker of Mexico’s natural gas market reform, offers the following Q&A column as part of a series of periodic interviews with market experts of natural gas in Mexico. Pineda is the 121st expert to participate in the series.
NGI: One of the biggest events in the Mexican energy industry this month was the ruling by the Supreme Court that declared the Electricity Industry Law (LIE) reform proposal to be unconstitutional. After the ruling, presidential candidate Claudia Sheinbaum posted comments saying that the decision should be appealed. Do you think there is a possibility that the LIE decision could be appealed?
Pineda: No I don’t. It won’t be possible to appeal. The resolution by the Supreme Court is the final decision and the last legal resort that we have in the country. There aren’t any additional appeals that could be considered valid, above all because the resolution applies in what are known as “general terms.” That means that the resolution didn’t pertain to a particular injunction, or amparo, and that it applies to the entire industry and to the benefit of all of the participants in it. So, for that reason, another appeal attempt won’t be possible.
What remains pending — and I think this applies to some of the pieces where it isn’t exactly clear on how things will play out — is that there is an abundance of injunctions that were issued against the proposed reforms to the LIE. And some of those injunctions, or amparos, are awaiting an individual resolution. We can expect that the district judges adopt the criteria that was adopted by the Second Chamber of the Supreme Court and that they declare the exact same articles to be unconstitutional. But, that additional step remains pending. All of those injunctions need to be resolved, and a likely outcome is that they will be dismissed given that they may no longer be considered material following the Supreme Court ruling.
NGI: President López Obrador has continued to call for an overhaul to the judicial system and has repeatedly attacked the Supreme Court. With a new Supreme Court justice to be named this year, do you think Sheinbaum, if elected president, might try to pass legislation similar to the LIE, like a LIE 2.0 version?
Pineda: It’s probable that she would include some similar aspects in her energy policy. Sheinbaum has had a different position than what we’ve seen from López Obrador, particularly in regards to renewable energies. One example is that she allowed Mexico City residents to install solar panels for domestic use. And that obviously counters the policy and the attacks that López Obrador launched on renewable energy. So, perhaps a reform initiative that Sheinbaum might take, if president, would be distinct to those attempted by López Obrador.
It is true that a lot of people are very worried about the configuration of the Supreme Court in the upcoming administration. But, at the end of the day, it seems that some of the justices that have been appointed — whose principal job is to defend the constitution — have done so independent of their personal political affiliation. That includes some of the ministers that were proposed by President López Obrador which, since entering the Supreme Court, haven’t necessarily ruled in favor of his proposed initiatives. So, when a new Supreme Court justice is named this year, it can be hoped it will be someone who acts independently of politics.
NGI: On Feb. 5, López Obrador sent a reform proposal package to the legislature that seeks to return the Comisión Federal de Electricidad (CFE) to be a “public company,” as well as an initiative that aims to get rid of the Comision Reguladora de Energia (CRE) and Comision Nacional de Hidrocarburos (CNH). Should members of the energy industry be worried these reforms might be approved?
Pineda: The López Obrador administration has already attempted constitutional reforms to restructure the energy industry — including a reform in the electricity sector — that haven’t prospered in Congress. Even if the president and the Morena party have a congressional majority to make reforms to the law, the supermajorities that are required to overhaul the constitution might not be within reach of his political power. And, perhaps more importantly, we’re in an electoral year. That makes it even more difficult to make the congressional alliances necessary to obtain approvals for these reforms, because right now each political party is more focused on the results of the June election. Right now might not necessarily be an ideal time to attempt to seek congressional alliances to pass a constitutional reform proposal.
NGI: In June, Mexico will elect a new president. What do you think the next administration — whoever the president is — should prioritize in the Mexican energy sector?
Pineda: I think it’s good to start with the important delay we currently have in the development of new infrastructure. And what I’m referring to includes electricity transmission lines and power generation — and that applies to whatever energy source, be it renewables, cogeneration, etc. The important thing would be to be able to send and distribute electricity to different points in the country.
There is a lot of talk about nearshoring that it is going to increase the energy demand in the country. A lot of experts in the industry, including the Mexican Institute for Competitiveness (IMCO) have commented that: without electricity, there is no nearshoring. There has to be a lot of focus on the places where electricity generation is needed, as well as the connectivity of various natural gas pipelines, precisely to allow for and facilitate the development of the industry.
A lot of the potential developments that nearshoring will bring are going to need access to natural gas. And the truth is, we’ve now gone several years without a new natural gas pipeline. We have to solve the connectivity issues we’re facing in the two peninsulas — the Yucatán and Baja California. We need to resolve what we are going to do in the peninsulas, both in terms of natural gas distribution, as well as electricity.
We also have to remove the obstacles that are impeding the various terminals for refined fuels and oil products, which were stalled at some point. The CFE launched an auction to partner with private companies in the reconversion of these terminals from fuel storage facilities to those of oil products. These are projects that can be done on land that is already available. The land has already undergone an environmental impact study, so there wouldn’t be a possible environmental impediment to its development.
These properties are also well connected, particularly in terms of their proximity to ports and ocean access. So, at this point it remains pending to see if the CFE is going to return to this project or not, and whether or not they will continue to facilitate the permits and the operation of the terminals by private companies. Instead of hindering their development and closing them, as was done a few years ago, they could reopen these storage terminals.
Additionally, we will have to attend to and resolve the issue of security and its impact on the availability of energy sources. The issue of fuel theft, for example, continues to be a very serious problem that is discouraging private companies from continuing to participate in sales or the retail of oil-related products. It’s a serious concern, particularly because Mexico has a growing demand for oil-related products. But we haven’t resolved those logistical and security challenges to be able to satisfy our demand in an efficient, complete manner, where we have high quality fuel available for consumption. This would create an open competitive market for different fuel providers that want to sell their product in our country.
NGI: Among your clients in the Mexican natural gas industry, what are they saying about the state of the industry and what they think are the needs in the country currently?
Pineda: This depends somewhat on the regulated activity that they are carrying out. One common need is for there to be an active energy regulator again. One that is equipped with technical strength, and for that a budget increase would be required as well. This would mean a CRE that could attend to all of the requests of permit holders in instances such as an increase in capacity on natural gas pipelines, for example. This would also consist of issuing new regulation in an attentive, efficient and opportune way. It would also include the resolution of questions and doubts in the industry, such as if interconnections are going to be regulated or not, and with what conditions. The same applies for an individual user of a natural gas pipeline. We also need a quicker response to rate proposals.
So, overall, we need a stronger regulator that is able to attend to the increasing demand of permit holders in the natural gas sector and in the development of their particular activities.
Also, I think we have to begin to look at the issue of strategic natural gas storage. That is the responsibility of Cenagas, though it is a necessity that we all share. Cenagas, at the end of the day, is obligated to follow public policy that was issued by the Energy Secretary. But, there hasn’t been any sort of consequence for Cenagas’s delay in the observance of the public policy that applies to minimum storage obligations. And there also hasn’t been much willingness by the Energy Ministry to seek, together with Cenagas, strategic projects that would be a good fit. There is also not a CRE in place that is available to resolve Cenagas’s issues in a quick and expedient manner. So, I think there has to be a renewed focus on strategic storage.
It’s also worth considering that this strategic storage could accompany the liquefaction projects that are being developed by Mexico Pacific Limited and Energía Costa Azul, as well as the others that might be built. At the end of the day Mexico, by converting itself into a re-exportation center for natural gas from the U.S., becomes very attractive. But we also need to think strategically about how to take advantage of that window that is available right now. It’s also important to think about the potential geopolitical changes that we may see next, and to consider how they may affect the natural gas market and Mexico’s position in it.
