Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, is offering the following column by Eduardo Prud’homme as part of a regular series on understanding this process.
Prud’homme was central to the development of Cenagas, the nation’s natural gas pipeline operator, an entity formed in 2015 as part of the energy reform process. He began his career at national oil company Petróleos Mexicanos (Pemex), worked for 14 years at the Energy Regulatory Commission (CRE), rising to be chief economist, and from July 2015 through February served as the ISO chief officer for Cenagas, where he oversaw the technical, commercial and economic management of the nascent Natural Gas Integrated System (Sistrangas). Based in Mexico City, he is the head of Mexico energy consultancy Gadex.
The opinions and positions expressed by Prud’homme do not necessarily reflect the views of NGI’s Mexico Gas Price Index.
It’s not easy to analyze the energy sector in Mexico in 2020. There is less public information available than previously and politics seems to find its way into everything. For this reason, the issuance of any official plan is worthy of review and can be an important view into what the priorities are for this government. This is the case of the Sistrangas 2020-2024 five-year plan, which in fact has a 13-year vision. The document appeared discreetly on the website of the Energy Ministry last week.
The plan is a list of projects that include several pipeline headers that can serve as hubs, the expansion of the Montegrande interconnection, and the construction of two compression stations on the 48-inch trunkline that runs along the Gulf. These changes to the network together would cost $180 million and would improve the continuity, reliability and flexibility of the operation of the integrated system.
Other projects are also mentioned but will be the subject of a future article. The plan dedicates a section to the results of a cost-benefit analysis, and although the beneficiaries of the plan are the users of Sistrangas as a whole, little is said about who will finance the investments and how costs will be recouped.
The hubs "Dulces Nombres" near Monterrey, "Leona Vicario" in the neighborhood of the Cactus processing center, and "Francisco I. Madero" in the Torreón area have undeniable merit and two of them are a reinterpretation of projects already outlined.
The first improves the connectivity between Sistrangas and the system operated by Kinder Morgan by installing measurement stations. With better monitoring at the confluence point, the system will allow flexibility for the gas to flow to two distribution zones, CMG and Naturgy, as well as to a pipeline owned by Cenagas. The incremental injection could be 200 MMcf/d in an area with large industrial consumption.
The plan does not specify whether this project will resolve the limitations that exist due to the pressure differential of one of the current Cenagas lines with the Kinder Morgan pipeline. What is clear is that as more routes converge and depart from this point, there are possibilities of having a market center in an emblematic area for the natural gas industry and with it, a first Mexican price index.
The impetus for a hub near the city of Torreón comes from Sistrangas wanting to have access to the routes that carry gas from Waha. Entry through the León Guzmán interconnection makes operational sense if what is sought is to supply this gas in the Torreón-Saltillo corridor. But it is important to point out that there is a geographical site that could also be a convergence point with the potential to be a market center: El Encino, south of the city of Chihuahua.
There the flows could be diverted to multiple destinations with pipelines that receive gas from Waha from Ciudad Júarez (Tarahumara owned by Fermaca) and from Ojinaga (Ojinaga - El Encino owned by Ienova) to continue to the Pacific coast (El Encino - Topolobampo), to the west of the country (along the section of the Wahalajara sequence that goes from El Encino to La Laguna) and to the north of the country (the National Gas Pipeline System operated by Cenagas).
But someone would need to pay for a complicated interconnection arrangement. And this is an arrangement that would contribute little to state power generator Comisión Federal de Electricidad (CFE). Its supply is already served with the private pipelines that operate parallel to Cenagas. On the other hand, as the plan explicitly states, the 200 MMcf/d of incremental capacity of the “Leon Guzmán” interconnection, that is, the first phase of the hub, is for the use of CFE.
The second phase will reverse the flow of Sistrangas to be able to offer 96 MMcf/d in the area of La Laguna or even Saltillo, also for “CFE use.” The aspiration written in the Hydrocarbons Law to have an independent technical manager that would attend to the needs of the market in an unbiased way seems to be in an anecdotal past.
The other hub, Leona Vicario, also has privileged users to attend to. The purpose of this project is to achieve adequate coexistence of the production at the Pemex Cactus and Nuevo Pemex processing centers, the import of gas at Montegrande and Pemex consumption for pneumatic pumping (the practice of reinjecting gas for oil recovery), gas deliveries for Cuxtal (the second extension of the Mayakán system) and future demand from the Dos Bocas refinery.
Interestingly, the Cenagas plan for interconnectivity would see a scenario in which imported gas is used for Mexican reinjection underground to increase pressure and continue to give artificial respiration to oil production. Pemex’s flagship Maya crude will see the light of day thanks to gas from Agua Dulce. The hydrodesulfurization of naphtha will have an input stream that will come from Texas.
This forecast is based on the data that can be observed in the plan. The Cenagas data included in the document show four domestic natural gas injection scenarios for the period from 2020 to 2033. The most optimistic projection promises that at the end of the López Obrador administration, injections of domestically produced gas into the network will be greater than 3 Bcf/d. With that same reckless enthusiasm, which surely comes from a group of engineers who want to give their bosses good news, by 2032 the Mexican gas production that is injected into Sistrangas will exceed 5.6 Bcf/d. There are scenarios that are more moderate, but still unlikely.
It is worth noting that according to the operating numbers reported daily by Cenagas as of Nov. 12, injection into the Sistrangas of national gas could barely hit 1.09 Bcf/d, a value lower than that reported in the plan for the 2020 average of 1.581 Bcf/d.
Seen like this, despite all the new international interconnections, the entry into operation of the marine pipeline and the Wahalajara system, the strategy to reinforce and improve the capacity to import gas from Texas must be central because the fundamental data indicate that domestic production is paltry.
In addition, it is important to remember that the new incremental capacity in Mexico is dominated by CFE as the anchor shipper of most of the infrastructure. This formidable connectivity is in the hands of a large intermediary, not the majority of marketers, not the end users.
Sistrangas is the physical space where it is possible to fully affirm that the open access principle exists and is effective. Operational flexibility and continuity improvements however must be planned for all users and for all existing routes, without discriminating between commercial brands or economic recipients.
That is why the absence of several projects in the plan is worrying since they were mentioned in the public consultation conducted by Cenagas last summer, particularly the “Las Adelitas” project planned to start operations in 2024. According to the information published by Cenagas itself, “Las Adelitas” would alleviate the saturation at the import point in Reynosa and would include an increase in the supply of imported gas.
With the connection of the Texport project to be developed in Texas by Enbridge with a lateral pipeline on the Mexican side to connect with the El Caracol Compression Station operated by IEnova, the Sistrangas would gain significant supply flexibility. Monterrey, the final area of the Ramones project in Bajío and the Altamira area would gain conditions of continuity in services with a total increase of 500 MMcf/d, a volume greater than all of Pemex's production in Burgos and in the Tamaulipas fields and that would allow supply options to users who today have unmet demand.
This capacity expansion, which at some point in the past administration was outlined as a “bypass to Reynosa” has as much or more merit in terms of systemic benefits than the rest of the hubs mentioned in this story. Its exclusion from the list of projects does not mean a legal impediment to make it executable. Nothing in the law prevents private participants from seeking projects without Cenagas being involved. It would not be the first case. Kinder Morgan and Gasoductos de Chihuahua are two systems that bring gas into Mexico and take it a long way into Mexican territory before delivering volumes to Sistrangas.
An independent regulator focused on promoting competition in gas supply might welcome such a project. An independent technical manager could seek capacity allocation mechanisms giving participants certainty to even promote the project without having to make a financial commitment. But the Energy Ministry has revealed its political preferences. The projects with the best possibility of execution are the ones that matter to Pemex and CFE, and within that the only one absolutely certain to get developed is the Dos Bocas refinery, executed at the president's wishes.
