A glaring weak spot in the Mexico natural gas industry is the country’s lack of storage capacity. The issue is repeatedly discussed and considered a risk to national energy security, as Mexico has less than two days’ worth of storage capacity and is vulnerable to unforeseen weather or geopolitical events.
According to Raul Puente, the Managing Director of Underground Storage for Grupo Cydsa, the Monterrey-based company has identified an opportunity to dramatically increase Mexico’s storage capacity and create the country’s own version of Mont Belvieu, the most important hub for natural gas liquids such as liquefied petroleum gas (LPG) in the United States.
"In the plot of land that we have, where we have the cavern where we store LPG for Pemex TRI since November 2017, we have three caverns that are ready for storage that are developed and have a total of capacity for 8.8 million bbl or, in natural gas terms, 10 Bcf of capacity,” Puente told NGI’s Mexico GPI. “On this same plot of land, we have the possibility to develop up to 10 additional caverns, which would mean 14 total caverns that could store hydrocarbons.”
He added, “The long-term vision we have is to develop a Mont Belvieu, similar to the one outside of Houston.”
Puente has worked as a director at Cydsa since 2015, where he has led the Underground Storage of Hydrocarbons business unit and actively participated in starting the LPG storage commercial operation. He is also a member of the Energy Commission of CAINTRA, which represents industrialists in Nuevo León state, and Vice President of Natural Gas in the National Energy Commission of Mexican employers confederation COPARMEX.
Previously, Puente worked as a director at Aon México and as a risk manager at building materials conglomerate Cemex. He holds a Master’s degree in business administration from the Tecnológico de Monterrey, where he also earned his bachelor’s degree in chemical engineering, and an MBA from the University of Texas in Austin.
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. Puente is the 120th expert to participate in the series.
NGI: In a recent energy conference in Monterrey, you spoke about Grupo Cydsa’s role in the energy sector and the company’s natural gas and hydrocarbons storage projects. Can you tell us some about the company and the current projects in the energy industry?
Puente: Grupo Cydsa has five distinct business lines. We have three businesses that are specialized in chemical operations. The first is salt, which is extracted from the earth and where we conduct what is known as solution mining. And that’s what creates the space beneath the ground and the cavity which we later use as a cavern that provides an option for hydrocarbons storage. So, salt — for industrial and consumption purposes — is a main area of our business. Our brand, La Fina, is very visible and well known in Mexico and can be found just about anywhere in the country.
We also have IQUISA, which stands for Industria Quimica del Istmo. In IQUISA, we take the salt and separate the sodium — the Na— from the chlorine — the Cl. We use the sodium to make caustic soda and chlorine, which has multiple applications. IQUISA has five plants throughout the country, three that make the caustic soda and chlorine, and two more that make specialty products that are derived from the caustic soda and chlorine.
In Monterrey, we also have Quimobasicos, a plant of refrigerant gasses for the automotive industry and the residential industry. We produce some of the gasses and source the rest from our partner Honeywell.
In the energy sector, Cydsa has two cogeneration plants, and we generate electricity that is used by IQUISA to do the electrolysis to separate the sodium from the chlorine. The steam that is produced by the cogeneration plants is used in the salt business to evaporate and separate the salt from the water to create the final product. We have a very interesting vertical integration there.
The newest business Grupo Cydsa has in the energy sector is the business of underground storage. The business started with the storage of LPG with a contract that we signed with Pemex and started commercial operation in 2017. The cogeneration plants began in 2014 and 2016, while the other Grupo Cydsa business lines have been around and existed for 79 years.
Our hydrocarbons underground storage business began commercial operation with Pemex TRI in November 2017. We currently have a cavern that stores LP Gas with a total capacity of 1.8 million bbl, which is completely reserved by Pemex TRI. We provide storage of this critical hydrocarbon, and we are a very strategic and relevant link in the logistic value chain that Pemex TRI has, given the company’s issues with fuel theft and other potential operational problems that they might face. The storage cavern is the buffer that allows Pemex TRI to guarantee continuity in the supply of LPG.
NGI: In the Monterrey conference, you mentioned that Grupo Cydsa has long-term hydrocarbon storage plans. Can you tell us about the plans the company has?
Puente: The LPG cavern is located between two municipalities that are located about 10 kilometers south of Coatzacoalcos in the state of Veracruz. On that plot of land, the long-term vision we have is to develop a Mont Belvieu, like the one outside of Houston, TX. This would be done in proportion to the land available and would obviously include the realities of the Mexican market, which is distinct from the U.S.
Mont Belvieu has more than 150 caverns and can store…600 million bbl. It’s a monster of an industrial park for storage of liquids. As previously mentioned, we have three caverns that are ready for storage that are developed and have a total capacity of 8.8 million bbl for liquids or, in natural gas terms, 10 Bcf of capacity. So, that’s more than a day’s worth of storage capacity for the country and could be the first steps Mexico takes towards building operational and strategic underground storage.
We made these three caverns on the heels of the momentum that we had after signing the first contract with Pemex TR,I and we saw an opportunity in the medium term to continue to provide opportunities for storage capacity for hydrocarbons. Given our salt business, we are going to permanently continue to extract salt from the earth and create caverns that would be available for underground storage development.
And, on this same plot of land, we have the possibility to develop up to 10 additional caverns, which would mean 14 total caverns that could store hydrocarbons. We anticipate and are hopeful that there will be continued demand for hydrocarbons storage from the energy sector in the area in the near future.
So, in our vision, we see a significant growth opportunity for the development of hydrocarbon storage in our caverns.
NGI: And of the three available caverns you mentioned that Cydsa has for hydrocarbon storage, how are they being utilized currently?
Puente: You could say they are on standby. They are currently full of brine, and we are maintaining them so that they are active and in adequate conditions to receive hydrocarbons in the near future.
NGI: And is Cydsa looking for a partner or an offer to utilize this storage?
Puente: In simple forms, we’re looking to replicate the first storage project we did with Pemex TRI. The first project is a long-term one, anchored by a government entity. This is the only way that someone is going to be willing to invest in a long-term project. This would be through a take-or-pay contract, regulated, with acceptable profit margins, and that is financed.
So, what are we looking for? We are looking for a potential customer that is willing to anchor a long-term project with a 20- to 30-year contract. With this deal, the contract is the source of the repayment and financing is required because it’s a significant investment. The contract provides the certainty required to repay the financing costs, given that it generates a profit that is acceptable, regulated, and that is approved by the regulator and the client.
We’ve had talks with private companies, but the conditions are different. Let’s take Mont Belvieu for example. In Mont Belvieu, that capacity was developed more than 50 years ago. There’s a waiting list for companies that want to enter and reserve capacity in a cavern to store the hydrocarbon of their choice. There are constantly companies entering and leaving, and one company substitutes for another and assumes the capacity space they had reserved. It’s a very active and very liquid market. But in most cases, a single company almost never occupies the entire space available with their capacity alone, and therefore there are multiple players that occupy a cavern to account for the entire capacity available.
So, the only way for a large-scale hydrocarbons storage project to be developed well is for the anchor customer to be a government related entity, such as CENAGAS, Pemex or CFE. This would be a similar model to how all the natural gas transport infrastructure is being done through anchored contracts currently in Mexico.
