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Mexico City — Mexican state fuel marketer CFEnergia will prioritize natural gas supplies to state-owned companies, including Pemex, boost industrial activity and even potentially participate in upstream activities under the new administration of President Andres Manual Lopez Obrador, according to Miguel Reyes, CFEnergia's general director.

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"We won't cancel our gas sales to third parties. However, we will prioritize the supply to strategic sectors," Reyes told S&P Global Platts.

CFEnergia is the fuel marketing arm of state-owned utility CFE. It currently trades over 3.4 Bcf/d of natural gas, nearly half of the country's demand. The subsidiary was created after Mexico's 2013 landmark energy reform to improve the supply of gas to CFE power plants.

Amid decreasing domestic gas production, CFEnergia is coordinating with state-owned gas system operator Cenagas and Pemex to ensure the industrial gas needs from the state oil company is satisfied.

As Pemex has prioritized oil-rich projects amid budget constraints, the company's gas production fell to 3.8 Bcf/d in 2018 from an all-time high of 6.5 Bcf/d in 2009

"Where are speaking with Pemex to form common strategies, respecting each one's action areas and responsibilities," Reyes said.

The company will also seek to supply gas to those key industrial sectors that will help achieve Lopez Obrador's goal of growing the economy by 4% per year.

"This might push us to seek to expand our sphere of influence beyond the sectors we currently serve," Reyes said.

CFEnergia's first priority is making CFE's generation units more competitive by reducing fuel costs, Reyes said. However, the subsidiary is also analyzing new strategies and infrastructure projects.

Anchoring new upstream gas projects and bringing gas to news regions of Mexico are among the ideas Reyes is exploring for CFEnergia's new business plan. Asked if CFEnergia could participate in the upstream sector, Reyes could not confirm it at the moment. The subsidiary has the financial muscle to invest in new gas production, but the challenges to implementing this plan are regulatory and strategic, he added.

"It is very important to see the opportunity cost from bringing gas from the US or developing new fields," he said. "The most expensive fuel is the one you don't have."

CFEnergia could work with Pemex or private upstream operators to develop new upstream gas projects.

"We are exploring all opportunities as long as they ensure CFEnergia's profitability," Reyes said.

CFEnergia is also seeking opportunities in developing new gas storage capacity to help Mexico be better prepared to face any potential gas supply disruptions, he added.

HEDGING WITH LNG TENDERS

Recent LNG tenders placed by CFEnergia were made as a hedge to any potential further delays in the entrance in operation of new pipelines anchored by CFE, Reyes said.

"We are now seeking options to have greater access to fuel amid the delays in the construction of new pipelines," said Reyes, declining to say when these might be operating.

All these delayed pipelines face social disputes, with some of them halted by legal action, challenging their commercial operation timelines, he added.

Generation power plants in Colima state requested CFEnergia to make a consolidated purchase of several LNG cargoes via the Port of Manzanillo as a precaution to Fermaca's Wahalajara system not operating this summer, Reyes said. The Wahalajara system connects the Permian Basin in West Texas and New Mexico with Mexico's West-Central region, where Colima state is located.

If the pipeline enters in operation this summer, CFEnergia will offer these LNG cargoes to other users within Mexico or clients abroad, Reyes said. Liquified gas is much cheaper than using fuel oil or diesel for power generation, and CFE generation units are taking a precaution to avoid using those fuels during the summer peak demand, he added.

S&P Global Platts Analytics data shows the Tarahumara Pipeline has already begun delivering gas to the El Encino-La Laguna segment of Wahalajara, a sign of progress for the massive system. Fermaca has not disclosed when the pipeline will be in operation, limiting to say gas flows are for packing and flow tests.

For CFEnergia, reconfiguring LNG terminals in Mexico to export gas to Asia is the last of its priorities, Reyes said.

"For us, our first goal is supplying gas to power plants and our national industry," he said. "I would prefer to help first to bring gas to economically depressed zones within Mexico," Reyes said. Instead of locking excess pipeline capacity in an LNG export project, he would prefer to move more gas into southern Mexican states like Oaxaca, Chiapas, Guerrero, and the Yucatan Peninsula.

"I would rather support our national industry than an LNG export facility," Reyes said. "I wouldn't reject developing such a project, but it wouldn't be my first priority."

-- Daniel Rodriguez, daniel.rodriguez@spglobal.com

-- John Hilfiker, jhilfiker@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com