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.
Natural gas demand in Mexico follows a well-known seasonal pattern. Demand peaks in the summer when the electricity sector is stressed by the load of air conditioning systems. As a result, the months of June to August require complete coordination and special attention from the operators of the electricity and gas networks.
The summer season of 2024 so far has seen a fairly comfortable scenario compared to some in the past. So far, there have been no alert situations in gas pipelines or massive interruptions in electricity supply. The system was able to withstand heavy loads, even when temperatures in July exceeded 110 degrees in some regions of the country.
Stability often goes unnoticed by the general population, but the current performance of the natural gas network in Mexico deserves to be applauded. Simply put, the five-year plan that gave rise to the large trunk pipelines that run from north to south has yielded results. The planning and strategic decisions, developed a decade ago at the Comisión Federal de Electricidad (CFE), have resulted in a strengthening of the availability of gas in many parts of the country.
The contribution of each pipeline adds up to a system that is robust and stable. The Sur de Texas-Tuxpan marine pipeline has perhaps been the most important piece to guarantee supply in the center of the country. Connectivity is achieved with the Naranjos-Tamazunchale-El Sauz gas pipeline. This 2.6 Bcf/d undersea pipeline is also the support that allows for balancing in the complicated panorama that is the Mexican southeast. Here, production growth in Ixachi and Quesqui and the growing self-consumption needs of Petróleos Mexicanos (Pemex) must be measured against chronic energy shortages in the Yucatán.
CFE's role as the main sponsor of the gas network and the largest player in the gas market in Mexico is the consequence of a deliberate sequence of energy policy decisions over the last 10 years. CFE has prioritized contractual certainty with gas pipeline services to secure the supply of fuel for generation. This was a certainty Pemex had not been able to provide and a more competitive market has yielded results.
It is worth noting that the national pipeline system, Sistrangas, operates a little differently from CFE pipelines. Its main injection point for imports, the connection with the NetMex Pipeline, was not designed to cater to fluctuations in the electric sector. From its start and until the entry into operation of the marine pipeline, the Ramones project was saturated. The recent slack appeared once CFE shifted consumption to routes in the new gas pipelines.
Given the lack of experience on how to ensure continuity with multiple agents and independent operators, along with the historical absence of market conditions in the Mexican electricity sector, centralization once seemed crucial to guarantee the reliability of the network in critical moments such as summer. It can be said that the relatively placid summer of 2024 is an achievement of the current administration.
De facto, the attention and management of the energy balance is due to the merit of CFE. The rest of the agents are auxiliaries. CFE has access to the information from the SCADA (Supervisory Control and Data Acquisition) system used by the Sistrangas manager, Cenagas. Cenagas, however, does not have the information that CFE receives from the SCADA systems of the different transporters with which it has contracts. Only CFE has the complete vision of the gas operation on a specific day. It can monitor the behavior of gas flows, and with this, remedy with spot operations any shortages it observes. All this is not compatible with the theoretical scheme provided for in the 2014 reform, but it is working acceptably. At least in terms of continuity.
This contradiction raises questions about the future of the energy sector in Mexico. The concentration of power in CFE, while in an operational context, co-opts competition and can be a risk to long-term security and innovation. In a market, peaks are also tempered by prices or long-term hedging commitments.
But as a monopolist, CFE has little incentive to hedge. The obstruction of the Tuxpan-Tula pipeline and the delays in projects to bring more gas to Yucatan show that centralization can be slow-moving. For now, what is clear is that the gas logistics strategy of more than a decade has borne fruit when it comes to meeting summer peaks. This is good news. The new administration coming to power in October needs to think carefully about how to continue to fortify the natural gas system. Mexico depends on natural gas for its basic economic health.
The “Puerta al Sureste” and “Centauro del Norte” pipelines will be key to adding flexibility to the pipeline system. There is no shortage of investment in the Mexican energy sector and memories of past summers, when things were not quite so easy, are the best lesson in this regard.
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 2019 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.
