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TRANSCRIPT
Understanding Mexico’s new natural gas market
Institute of the Americas webinar 29 September 2016
James FowlerEditor: ICIS Mexico Energy Report
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Introduction to ICIS
Market deregulation
The gasification of Mexico
Q&A
Contents
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Introduction to ICIS
We provide market intelligence to the global petrochemical, energy and fertilizer industries.
Companies in these markets trust us to provide accurate, relevant and timely NEWS, PRICING DATA, ANALYTICS
and CONSULTING to guide their decision making.
Our information and analysis covers:
• Chemicals: aromatics, olefins, intermediates, solvents and plastics
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Specialists in energy
Leading price provider for
European gas and power
markets; benchmarks for most
liquid European markets such as
NBP and TTF.
Largest and most specialized
LNG market reporting team.
Covering US carbon market
since 2013.
Launched Mexico Energy
Report in May 2015; first
English-language publication
focused exclusively on Mexico’s
gas and power markets.
Market deregulation
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Gas deregulationCompanies other than Pemex able to participate across all sectors of the gas industry for first time
since 1938.
Mexican national gas transmission system (Sistrangas) and private pipeline capacity will be made available for third party access.
New competition as wholesalers in the US now able to take market share off Pemex, which must shed 70% of its current contracts by 2019.
Creation of secondary market, in which unused capacity can be bought and sold from shippers. Electronic bulletin boards to be set up, providing operational information - e.g. tariffs, idle capacity - on a publically accessible platform.
Additional pipeline infrastructure investment and expansion sponsored by CENAGAS. Opportunity for private sector to propose their own pipelines and distribution networks.
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Gas deregulation - CENAGAS
CENAGAS – Centro Nacional de Control de Gas Natural/National Center for Natural Gas Control.
CENAGAS will operate Mexico’s national natural gas transportation pipelines and storage system. PEMEX is currently in the process of transferring these operations to CENAGAS.
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Gas deregulation- capacity allocation
CENAGAS currently has two systems: SNH in the northwest and Sistrangas (formally SNG) in the rest of the country. Private pipelines can voluntarily join either system.
If an end user needs gas on their system, the counterparty can contact CENAGAS to buy delivered gas.
By the end of the year, approximately 6-6.5bcf/d in Sistrangas capacity should be allocated in two steps:
1. Firstly to Pemex and CFE; roughly 40% of system capacity.
2. Then existing baseload customers and acquired rights holders: allocated based on 2009-2011 consumption + some standard deviation. Remaining capacity offered through open season.
End users can manage transport themselves or allocate to a third party shipper including PEMEX or CFE.
Capacity allocation and market launch
vSeptember 2016- Round 0: allocation of capacity to CFE and Pemex
October/November 2016- Round 1: allocation of capacity to baseload demand customers, acquired rights holders and open season
Late 2017 -Pricing deregulation: removal of VPM pricing formula for natural gas imports from the US
March/April 2017- Launch of new natural gas market
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Pricing deregulation
Venta de Primer Mano (VPM) formula caps the prices Pemex can charge per molecule of natural gas based on two locations; Reynosa in the north and Ciudad Pemex processing plant in south.
Reforms in February 2016 take into account changing circumstances in the US, ease the losses made by Pemex.
SENER roadmap sees VPM removed for gas imports from 2017 onwards. CFE already free of VPM obligation.
Cd. Pemex price potentially removed 2018 if sufficient competition exists.
However already complaints from industry about rising prices given recent VPM reforms and increase in power prices.
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New infrastructure Pipeline network to increase to nearly
20,000km by 2018.
Gas delivered to new areas of the country, previously without access to the fuel.
Pipeline projects sponsored by CFE, Pemex.
Five year plan: identified new pipelines and compression stations for the grid.
Updated 2016: no new projects, southern pipelines postponed until 2018-19, Los Ramones - Cempoala 2020.
Cenagas to handle all new projects.
Source: SENER
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Separate systems
CFE tendered pipelines owned by the private sector.
CFE anchor customer. Pipeline owners auction capacity to third parties through open seasons.
CENAGAS and CFE, private sector to coordinate to balance system. However CENAGAS has no oversight on private pipelines.
CRE will instead enforce open access, anti-monopoly rules as well as posting of information.
Two separate systems could create new arbitrage points. Different supply sources, different tariff structures.
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New supplies
Manzanillo LNG 0.5 bcf/day
Costa Azul LNG 1 bcf/day
Altamira LNG 0.5 bcf/day
California 2013: 0.8 bcf/day2015: 0.8 bcf/day2020: 1 bcf/day
Arizona 2013: 0.45 bcf/day2015: 0.7 bcf/day
2020: 0.7 bcf/day
Texas 2013: 2.9 bcf/day2015: 5.1 bcf/day2020: 11-12 bcf/day
Source: SENER,
EIA, ICIS
Market Expansion
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Demand and imports set to continue growing
Demand to grow 55% from 7.5bcf/day in 2015 to 11bcf/day by 2029.
Power sector demand the main driver, followed by industrial sector.
Pipeline imports also set to grow to 5bcf/day by 2017.
Domestic production coming online from 2018 onwards, eating into US pipeline imports.
0
2
4
6
8
10
12
2015 2017 2019 2021 2023 2025 2027 2029
Bill
ion c
ubic
feet
per
day
Year
Mexican natural gas demand 2015-2029
Domestic Production Natural gas imports
Source: SENER
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Demand growth by sector
0
1
2
3
4
5
6
2015 2022 2029
Bill
ion
cu
bic
fe
et
pe
r d
ay
Year
Gas demand by sector 2015-2029
Oil and Gas Industrial Power Residential + Services
0
10
20
30
40
50
60
70
80
90
100
2015 2022 2029
%Year
Natural gas as % of total fuel consumption per sector 2015-2029
Oil and Gas Industrial Power Residential + Services
Source: SENER
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Increased use of natural gas stabilizes power prices
0
500
1000
1500
2000
0
200
400
600
800
1,000
1,200
1,400
1,600
MX
P/M
Wh
MC
M/m
on
th
Month
Power sector gas consumption vs average monthly marginal power price
Gas consumption Central Monterrey Occidental VeracruzSource: CENACE
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Supply shortages keep prices high
0
500
1000
1500
2000
2500
3000
3500
4000
4500
MX
P/M
Wh
Month
Average monthly marginal power price
Central Monterrey Occidental Veracruz Merida La PazSource: CENACE
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Conclusion
Deregulation expected to stimulate Mexican gas demand, bring cheaper natural gas from US into Mexico. This in turn boosts industrial competitivity and lowers power prices across the country, as well as cleaning up Mexican power mix.
Mexican natural gas demand set to continue growing. Demand could hit 10bcf/day by end of the decade, one of the seven largest gas consumers globally.
Increased dependence on US imports, with potentially up to 75% of all gas consumed in Mexico coming from the US by end of the decade.
Mexico therefore sensitive to US natural gas prices such as Henry Hub + South Texas indexations...
…BUT long term need to develop a Mexican reference gas price. This would stimulate growth of domestic market, and potentially expedite the development of domestic resources.
