Acclaim Energy México

The Mexico Natural Gas Market: Are We On the Right Track?

The world is transitioning when it comes to energy and renewables are already taking a leading role, and natural gas is the fuel that will enable them to take center stage. Many economies have recently increased the use of natural gas in their energy mix and are benefiting from its low carbon footprint and its capacity to supplement renewable electricity generation. The consensus amongst energy experts indicates that Mexico needs to intensify its use of natural gas to improve its competitiveness and meet global emission reduction objectives.

Over the last decade, Mexico has been setting the foundation for transitioning into a cleaner and more efficient electricity generation with an unprecedented buildout of natural gas transportation infrastructure. The significant investment in infrastructure has been accompanied by constitutional, legal and regulatory reforms, which over the last five years, have helped to strengthen the institutional framework for natural gas in Mexico. CENAGAS has been instrumental in this role and has greatly contributed towards reaching the ultimate objective, that is, the development of an efficient market for natural gas and its transportation. However, there are still many challenges ahead before Mexico can truly develop a fully competitive and efficient natural gas market.

What are these challenges?

  • –  A difficult legal framework: Natural gas infrastructure companies could be greatly impacted by the difficult legal framework that surrounds energy projects in Mexico. For example the lack of a specific law that regulates indigenous consultations, despite the requirement to hold such consultation prior to starting any bid proceedings, permit application or project development. Moreover, the current protocols and general regulations around the indigenous consultations have proven inadequate and insufficient at this time.
  • –  Regulatory uncertainty: The current environment of regulatory uncertainty that surrounds Mexico’s energy market may be preventing new participants from entering the natural gas market and current market participants from making investment decisions or increasing their commercial footprint in Mexico.
    One major concern is the possibility that CENAGAS loses its unbiased approach to grant access to the largest natural gas transportation system in Mexico to reduce the conflict of interests that prevailed in the past. This step would put private companies at a disadvantage against PEMEX and CFE, reducing the development of the natural gas market.
  • –  Operational: The current national transportation network is one where a national integrated pipeline system and a growing set of privately owned and operated pipelines currently co-exist. Experts have pointed out the uniqueness of this arrangement, and the need for operational coordination to prevail. In fact, further regulations and updated operating manuals for better coordination between gas transportation companies and CENAGAS are required. This coordination will become paramount as additional pipeline capacity becomes operationally and commercially available.

What can we do to improve the future?

For one, it will require a greater effort from all market participants including regulators and the government. Private companies have shown their willingness to collaborate with the Mexican regulators and government in the development of an energy market, which will allow Mexico to address its lack of investment on energy infrastructure, meet sustainability targets and bring down energy prices.

A greater effort from all levels of Government is also required to address the legal and social problems that are delaying several important pipelines currently under construction or about to come into operation; and offer greater legal and regulatory certainty for all market participants in the gas market.

The legal and regulatory certainty will allow for the completion and further development of new pipeline projects, which will play a vital role in reducing the need for LNG imports to meet demand and lower the average price of natural gas across the country. This, in turn, will also boost competitiveness for all industrials, who are natural gas consumers, while reducing the costs of electricity generation. These savings could then be passed on to the end user, further reducing the need for subsidies to lower electricity bills.

If you are looking to understand more about the current scenario in the natural gas market and the possible impact it could have in the near and medium term, do not hesitate to contact us.

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