COLUMN: Time to reassess capacity allocations on Mexico’s pipeline system
Editor’s Note: The Mexican Gas Price Index from NGI, a leader following reform of the Mexican natural gas market, features the following column by Eduardo Prud’homme as part of a regular series on understanding this process.
At the end of June, numerous capacity contracts for the transmission of natural gas on a firm basis on the national Sistrangas pipeline network will be concluded. Some of these contracts deserve special attention because of their size, such as the one between the network operator Cenagas and the Comision Federal de Electricidad (CFE) for 677,026.67 GJ / day which has been in effect since February 2017. In total, CFE and its subsidiaries see more than 900 MMcf / d of contracts expire at the end of the month. All these capacities in the hands of the most important player in the Mexican gas system raise interesting questions about the renewal of these contracts given the dominant role of CFE not only in the Sistrangas but also in the capacity of the rest of the gas pipelines in Mexico.
There is certainly an unmet demand for capacity. Gas flows have increased significantly at certain segments or connection points of the integrated system. A joint review of capacities and flows by extraction points shows systematic and contrasting differences. Points supplied with interruptible services or excess volumes occur simultaneously with spaces reserved for firm capacities which experience low levels of use.
It is clear that the day-to-day operation differs from the hydraulic scenario that served as the basis for the 2017 open season process. The roads and capacities in commercial operation still substantially reflect the general allocation process in 2017. Although the main points have experienced some business realignments, overall business capacity has not changed significantly from the 6.3 Bcf / d that was distributed among the users of the system. . The sum of the capacities subscribed is now around 6.1 Gcf / d, which means that part of the maximum daily quantities allocated during the open season has been reduced in certain contracts. This freed up capacity does not necessarily have to be put back on the market as part of a tendering process, but the gas system is different today than it was then and its needs are different.
In previous years, through announcements on its electronic portal or at public events, Cenagas has been clear on the process to be followed for the renewal of capacity contracts, in which it offers a certain flexibility in the terms but not in the maximum daily amount allowed for each agreement. Even the management overhaul that took place in December 2018 has not changed this annual cycle. The recent change at Cenagas which saw Elvira Daniel replaced at the helm by Abraham Alipi Mena is one possible explanation for the lack of clarity around contract renewals. In addition, a new open season has not taken place even if new flows have appeared following the commissioning of new pipelines. This is important because when new pipelines are put into operation, even if they are not part of the integrated system, they still have impacts on the Sistrangas.
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When the Texas-Tuxpan marine pipeline was commissioned in late 2019, significant changes occurred in the operation of the 48-inch mainline owned by Cenagas that runs along the Gulf of Mexico coast. The Montegrande interconnection, with a capacity of 500 MMcf / d, made it possible to increase injections of imported gas without having to go through the compression stations of El Caracol, Los Indios, Soto la Marina and Altamira. In addition, the interconnection at Naranjos with Transportadora de Gas Natural de la Huasteca has ceased to operate daily to supply the flow that feeds the electricity production at Tamazunchale and for the delivery of gas to Sistrangas in the Querétaro region for production. electricity in El Sauz. Today, these volumes pass through TC Energía’s systems, which means that the capacity on the routes that previously served this supply must be available at least partially.
Route substitution has also occurred in a similar fashion at Altamira, with generating plants changing their transmission system to meet their gas needs. The western area of the Sitrangas system has also seen changes in operating philosophy due to the commissioning of the Wahalajara system. A pipeline built to bring gas to the Tierra Mojada production plant in the municipality of Zapotlanejo now serves as a bypass from the Fermaca pipeline to one owned by Cenagas, adding more gas to an area that previously received gas from El Castillo.
These cases illustrate the dynamics of a complex transport system such as the Sistrangas with multiple injection and extraction points. Without Cenagas and its investments in compression to increase capacity or in new segments to extend the system, the actions of other operators would only be positive externalities that improve existing operating conditions.
Paradoxically in recent weeks, the availability of gas supply in the south-east of the country has fallen to levels that compromise the operation of Cenagas, with a pack of pipes below 6.5 Gcf / d on several occasions. . In the past, these reductions were treated with liquefied natural gas (LNG) injected from Altamira or from Manzanillo. Today this balancing gas can come from new interconnections. The effect of gas exchange between systems is becoming more important than ever.
For example, in Pedro Escobedo, prior to the operation of the marine pipeline, flows rarely reached 200 MMcf / d. In June 2021, Sistrangas revenue at this stage reached 525 MMcf / d. The direct interconnection of Montegrande, designed to receive 500 MMcf / d, operated this week at full capacity. In other words, the net effect of the marine pipeline on the Sistrangas is 1 Bcf / d. Regarding the effect of the interaction with the Fermaca system, although of lesser magnitude, the incremental effect is between 150 and 200 MMcf / d.
This summer, Cenagas is expected to use the contract renewal process as a pretext to conduct an in-depth review of the operational capabilities of all commercially meaningful routes and conduct a new general capacity allocation exercise. Initially, it could well follow the spirit of the transitional rules of the Hydrocarbons Law, in what has been called the “Round 0” and give CFE the possibility of relocating its volumes contracted due on June 30 to use its maximum daily capacity with the new injection points.
The existence of these new points occurred thanks to the infrastructure that CFE anchored and realized. Once this allocation is made, there would be a substantial capacity available at multiple import points which can be used by existing Cenagas users who have differences in their capacities and volumes at the same time that this would open up space for the unmet demand and entry of new market participants. In short, it is very likely that at present, what prevents the market from accessing new capacities, it is not a CFE roundup or an energy policy that breaks with private investment. It suffices with a little technical expertise and commercial imagination on the part of Cenagas to measure the effective systemic capacity and to lead a general process of capacity allocation that leaves all agents, public and private, happy.
Prud’homme played a central role in the development of Cenagas, the national gas pipeline operator, an entity formed in 2015 as part of the energy reform process. He started his career in the national oil company Petróleos Mexicanos (Pemex), worked for 14 years at the Energy Regulatory Commission (CRE), becoming Chief Economist, and from July 2015 to February was ISO Director of Cenagas, where he oversaw the technical, commercial and economic management of the nascent integrated natural gas system (Sitrangas). Based in Mexico City, he heads the energy consulting firm in Mexico Gadex.
The opinions and positions expressed by Prud’homme do not necessarily reflect the opinions of NGI’s Mexican gas price index.