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ATCO, CYDSA join forces to develop Mexico oil, gas and refined product storage

Calgary — Canadian energy logistics company ATCO and Mexican chemical and hydrocarbon storage company CYDSA have signed a memorandum of understanding to invest in oil, natural gas and refined products storage opportunities in salt caverns and depleted reservoirs, ATCO has said.

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Both companies will also look for opportunities for gas gathering and processing as well as natural gas liquids extraction and fractionation, the Calgary-based company added in a late Tuesday statement.

ATCO nor CYDSA were immediately available for comments. Although the companies didn't disclose any projects in the statement, the opportunities to develop storage facilities in Mexico are extensive.

Currently, Mexico has enough refined product inventories to last three days. The country's energy secretariat is implementing a strategic fuel reserve policy that seeks to increase this to 11-13 days depending on the region.

One of Mexico's most lucrative storage development is for natural gas as the country currently has no underground storage facilities.

Mexico's Natural Gas Control Center (CENAGAS) is expected to release an auction for the country's first natural gas underground storage facility soon.

The project will be developed in a depleted gas field named "Brasil" in the northeastern state of Tamaulipas. The field has been estimated to have a potential to store up to 786 Bcf of gas, enough to store more than half the gas Mexico imported from the US in 2016.

The development of this storage facility would allow Mexico to balance peak demand loads. Currently, the country depends on LNG imports and storage to balance its system.

In addition, the project could play an important role in aiding seasonal or other gas price arbitrage. A large storage facility would also help facilitate the development of trading hubs and index pricing in Mexico, making the country less dependent upon spot market transactions in the US.

CYDSA in a statement released at Mexico's stock market on Tuesday said it expected to combine its know-how in salt cavern exploration in Mexico with ATCO's expertise in underground hydrocarbon storage.

"The cooperation will benefit the Mexican economy and improve the competitiveness of many industries through the reliable delivery of oil and gas products to the benefit of producers and consumers," Tomas Gonzalez Sada, CYDSA's CEO, said in the statement.

The Mexican company specializes in chemical products has a long experience extracting salt from caverns in the state of Veracruz.

In November, CYDSA began operating Mexico's first liquefied petroleum gas salt cavern storage facility in Coatzacoalcos, Veracruz, along with partner Mexico state oil company Pemex.

The facility can store 1.8 million barrels of LPG and it has an injection and extraction rate of 120,000 b/d. The company drilled four salt caverns to develop the project, according to files submitted to Mexico's stock market.

Underground storage is regulated in Mexico. The country's top energy regulator CRE set a maximum storage tariff for CYDSA's project of Peso 32.28/b ($1.68/b) storage per month and a flat handling fee of Peso 0.899/b (47 cents/b).

ATCO is developing a four salt caverns with a capacity to store close to 2.5 million barrels of hydrocarbons near Fort Saskatchewan in Alberta. The project is expected to be completed by year's end.

--Daniel Rodriguez,
--Edited by Richard Rubin,