Mexico needs to improve the integration of its natural gas infrastructure or risk having an inefficient network, according to an IEnova executive.
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Both commercial and infrastructure harmonization are required, IEnova Chief Development Officer Tania Ortiz said late Monday at the Platts Mexican Energy conference.
While Mexico's Control Centre for Natural Gas, or CENAGAS, has a model like European countries with socialized costs, CFE's tendered pipelines follow the US model with tariffs for each route.
"This implies that from the point of view of competition there are unequal conditions and distortions," Ortiz said.
For example, an industrial user in Monterrey with CENAGAS will pay a regional tariff, absorbing the transportation cost of the whole region, she said.
But if this industrial user has enough volume to build a pipeline to the US border, it will only pay for that segment, she added.
"If both systems aren't harmonized, it could create an effect where large users in some regions abandon CENAGAS, creating a snowball of increasing tariffs," Ortiz said.
Another integration challenge is the physical interconnection between CENAGAS and pipelines tendered by CFE.
While Mexico has built many north-south corridors, there aren't any major east-west routes beyond the Manzanillo-Tuxpan system.
"Having more interconnections is fundamental to have a truly efficient system," Ortiz said. "This is going to be a very complex regulatory and commercial exercise, but one that is urgent so we can speak about one and not two systems."
Related: Find more content about Mexico's commodity landscape in our news and analysis feature. Additionally, read our special report, Mexico's energy transformation takes hold.
She added that other large challenges for Mexico's gas market include the acquisition of right-of-path permits, the aboriginal consultation process and the need for natural gas storage.
Mexico's complex land ownership system is already full of irregularities, but Ortiz said "exhaustive" processes under the energy reform have made it more difficult to acquire right-of-path permits.
"Acquiring right-of-paths used to take one month; now it can take up to three to six months," Ortiz said.
In the case of aboriginal consultations, the process isn't clear.
"We need more precise regulatory specifications," she added.
Ortiz said Mexico needs urgently to create gas storage.
"Having growing dependency on imported gas without having storage is a great concern," she said.
Ross Wyeno, a senior analyst with Platts Analytics, said at the conference late Monday that Mexico's dependency on US imports would continue to grow as domestic production decreases.
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Wyeno forecasts US exports to Mexico will grow to 7 Bcf/d by 2020, pushing LNG imports out of the country.
US gas exports to Mexico have been constrained due to pipeline construction delays. After the Sur de Texas-Tuxpan and Villa de Reyes-Guadalajara pipelines are built in 2018, US exports will ramp up, Wyeno said.
He forecast Mexico's natural gas demand to grow to 10.5 Bcf/d by 2027, led by growth in industrial and power demand.
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