SENER publishes upstream pipeline rules

Late 2016 and 2017 will be a crucial time for Mexico’s energy reform to turn from a mere agenda to actions including completion of the liberalization of the upstream pipeline system.

CENAGAS just held the first open season for SISTRANGAS pipelines with results coming in January 2017.

CENAGAS will also start publishing pipeline capacity and flows at all injection and extraction points starting in December 2016. In addition, CRE will start posting weighted averages of delivered prices for 14 zones starting in January 2017.

One concern over the open access of pipelines is that the State Productive Enterprises (EPE), including CFE, PEMEX and their subsidiaries and affiliates, currently have contracts on the upstream pipeline capacity to import gas from the US. The gas market will not be fully liberalized if the two continue to hold the capacity on these pipelines to themselves.

To address this issue, SENER has published the mechanism to open access to available imports capacities through an auction held by CENAGAS. To participate the auction, one has to (i) apply for registration on CENAGAS’s electronic board (ii) have a contract with the corresponding EPE (iii) present a guarantee to CENAGAS (iv) have a contract of reserved capacity on SISTRANGAS with CENAGAS or have a marketing contract with an entity who has reserved capacity on SISTRANGAS.

Although this auction is scheduled for early 2017, one can infer from condition (iv) that the auction is unlikely to happen before the results of the open season on SISTRANGAS are published.

EPEs will maintain the long-term contracts on the US side, but they will publish available capacity on CENAGAS’s electronic board. Once the interested parties meet the requirements to participate in the auctions, they will submit their bid for the available capacity. The auction rate will be the unit cost offered by the last interested party to whom capacity is awarded.

CENAGAS will then publish the auction results. The winning parties pay the determined tariff and associated variable costs to the EPE. In turn, the EPE delivers gas to them at the points of injection indicated by the winning parties, up to the border of Mexico.

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The winners of the auctions in international pipelines will have the freedom to buy natural gas in the US with the supplier of their choice, so that the EPE will not be able to condition the use of the capacity resulting from the auction to the purchase of the hydrocarbon with the corresponding EPE, or bundle it with other services.

There is still some lack of clarity around what type of contract a participant needs to enter into with an EPE prior to the auction as well as the timeline of the auction itself. Nevertheless, the implementation of such an auction will ensure the success of the gas market liberalization in Mexico.

With open access to the upstream and downstream pipeline capacity, Reynosa could become a market hub without a regulated first-hand sales price in 2017, as planned by the government.