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.
Every Mexican summer, natural gas imports from the United States peak. The aggregate figure reflects impressive growth in the last decade. If we take the creation of Cenagas in 2014 as a milestone, imports before its existence were a little more than 2.1 Bcf/d. Last summer, we saw import volumes rise above 7 Bcf/d.
The gasification of the country was part of an economic policy in which industries took advantage of a cheaper and cleaner fuel that was readily available across the border. The principle of open access was not a dogmatic measure but rather aimed at getting more marketers to bring gas to businesses and homes.
When analyzing the latest data on flows into each transportation system in Mexico, nuances appear, and with them risks and opportunities. The aggregate data reveal a national gas supply that is irremediably declining despite recent oscillations that presaged greater self-sufficiency. The energy policy of President López Obrador has sought a balance between tempered electricity market demand and a greater dedication of financial resources to Petróleos Mexicanos (Pemex). The operational result, intentionally or by chance, is one of stabilization of imported gas into the national pipeline system Sistrangas.
In this integrated system operated by Cenagas, the peak of the sum of receipts from inland pipelines or indirectly from interconnections with the Sur de Texas-Tuxpan underwater pipeline or the Wahalajara system occurred almost three years ago when the import figure hit approximately 4.2 Bcf on April 13, 2021. In January this year, imports into the Sistrangas on some days barely reached 3.5 Bcd. This decrease in imports in the country's main gas network occurs at the same time as total imports in all international interconnections hit record levels.
This constitutes a sign of broader changes in the energy logistics panorama in Mexico. The operational detail of imports deserves attention. Unlike the drop in the utilization factor of the Ramones system, which has gone from being full to having a slack of approximately 25%, the Nueva Era gas pipeline has been a pillar of the growth of gas consumption and improvements in supply reliability in the Monterrey area. Peaks of around 450 MMcf/d were observed late last summer. This suggests that this pipeline has the quality of providing a consistent supply base independent of the dominant influence of Cenagas in the region. This parallel route shows gradual but solid growth and could be an example of a new way to bring gas to a productive area such as Nuevo León.
Without the bureaucratic complexities of Cenagas, or conditions in contract renewal processes, users can have greater certainty with long-term contracts and transparency regarding the origin of their molecule. To support this argument, it is worth reviewing imports through the Kinder Morgan system that brings gas to the vicinity of Monterrey. At this point of admission, volumes have gone from 600 MMcf/d in 2018 to less than 400 MMcf/d today. The reason for this reduction is structural. There is no compression equipment that can overcome the pressure of one of the pipelines that Cenagas operates in the area and that could move more gas to the West.
The technical solution to this conundrum as outlined in plans by energy Ministry Sener and Cenagas to create the Monterrey Hub. Beyond guessing why this project never materialized, the contrast between the cases of Nueva Era and Kinder Morgan shows that the obstacles to supplying more gas are not insurmountable, but they cannot be left in the hands of public policy alone.
Recently, there are other protagonists behind the growth of the Mexican market in the West Texas area that have little to do with the historic interconnection of Sistrangas with Gasoductos de Chihuahua. The pipeline that goes from Ojinaga to El Encino, in the state of Chihuahua, moved an average of more than 900 MMcf/d in the summer of 2023. This pipe, which began operations in just 2018, has opened the opportunity for Mexico to receive massive gas volumes from Waha and thus reinforce energy security in the highlands and in the west of the country. It is an affordable, reliable source with low risks of interruption unprecedented in this area.
Far from the influence of Pemex operations, this flow reaches new consumers who have never received a domestically-produced molecule. This pipeline together with the combined import of between 600-900 MMcf/d from Tarahumara and San Isidro-Samalayuca form a symbiosis between the productive capacity of Texas, resulting from the shale gas revolution, and the new energy demand of Mexico. These systems operated by Sempra and Esentia are key pieces in the generation of electricity and industrial growth, transcending the traditional presence of Pemex in the development of hydrocarbon markets.
In the case of the underwater pipeline and the Ramones system, the two main entry routes of U.S. gas into Mexico, gas imports literally collide with national production located in the south of Veracruz. U.S. gas entering through Montegrande reached a little more than 0.5 Bcf/d on some days in 2021. In recent times, the gas entering the Sistrangas through this point is around 200-300 MMcf/d. The underlying reason for this drop is the abrupt growth of gas delivery from Pemex to Sistrangas in Playuela and PEP Mendoza for incremental volumes of approximately 200 MMcf/d in each node.
The physical configuration of the network causes paradoxes that are difficult to explain. Operational rigidity due to a lack of more compression equipment prevents efforts to increase production from being taken advantage of by users. The fortune of obtaining more production from Ixachi has caused cuts in routes contracted on a firm basis and prolonged operational emergency situations. It simply isn’t physically viable to increase natural gas exports from the United States to Mexico through Sistrangas because there is no complementarity but rather a substitution effect.
The crux of the matter is that Sistrangas is not entirely capable of managing the various sources that make up Mexico's gas supply. The interaction between these elements in recent years is a paradox. With greater availability of gas, Cenagas is actually moving less gas.
The underutilized capacity on the Sistrangas amid record imports is a sign of a strategic asset that is not working efficiently. The system needs to be reinforced with equipment that provides it with flexibility. Nearshoring not only requires more pipelines but also better business practices. Cenagas must take concrete actions that facilitate connectivity for users and make investment agreements viable with other operators to open new routes and provide solutions to their customers. If not, it will be players like Nueva Era, Esentia or Sempra who will get natural gas to Mexican users and Cenagas will be left in the dust by the competition.
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.
