Navigating Mexico s Energy Reform: The Natural Gas Market

Transcription

1 Navigating Mexico s Energy Reform: The Natural Gas Market

2 Natural gas has emerged as a key energy source given its low greenhouse gas emissions, greater efficiency and competitive prices. In order to increase the supply of natural gas, the Mexican government intends to implement a comprehensive regulatory and institutional framework in order to foster an efficient and competitive natural gas market. The Energy Secretariat (SENER), together with the National Natural Gas Control Center (CENAGAS), has drafted the regulations that will apply to the industry, following consultations with private players. The five-year plan is based on two key imperatives: 1) to minimize the risk of supply disruptions and 2) to ensure that infrastructure capacity builds can meet demand peaks across the country. In this regard, the plan includes the construction of 5,159 kms of new pipelines, requiring investments of almost US$10 billion. As of today, the majority has been tendered, and several have already been built. SENER is working on a five-year plan ( ) to expand the transportation and storage infrastructure. A thorough assessment on the outlook of supply of natural gas fundamentals will inform future transportation infrastructure projects in the country and guide investment decision making by the private sector. Source: accessed on July 18, Navigating Mexico s Energy Reform

3 New Players in the Industry Federal Government Manages and regulates the oil industry Oil Industry State Operators Private Operators PEMEX/EPE the former state-owned monopoly Individuals or legal entities incorporated pursuant to the Mexican legislation Energy Policy - Supply policy - Instruct the development of strategic and social projects - Opinion on the distribution network expansion Independent System Operator - System management - Network operation - Bidding of strategic and social projects Coordinated Regulatory Entity - Permits for pipeline transportation, distribution, storage, liquefaction, regasification, compression, decompression, retail and integrated systems management. - Service fees - Opinion on the biddingguidelines - Wholesale market regulation - Service terms and conditions Safety, Energy and Enviroment Agency - Industrial and operational safety - Decommissioning and abandonment - Emissions and waste control State Productive Enterprises - Guarantee demand - Will bid strategic projects instructed by Sener until August 2016 Private Companies - Infrastructure development - Transportation and storage services - Natural gas commercialization The Natural Gas Market 3

4 Before and after the Energy Reform The model of operation of Pemex as a sole hydrocarbons producer in Mexico has been modified by a new competitive model. Pemex Before Old Model Pemex After New Model Descentralized Public Entity Resource Manager State Productive Enterprise (Pemex), with two main subsidiaries (PEP & TRI) and several affiliated companies Aimed at generating economic value. Responsible for Supply Permit regime for some activities Becomes one among other market participants Under new regulations Pemex will compete in all activities of the value chain Energy Reform in the Natural Gas Market Natural Gas Production Participation of various producers under permits Commercial Trade Open Market Restructuring of affiliates and their functions Subject to permit regime Transportation And Storage Creation of CENAGAS Limitation of PEMEX in participation in projects of social interest Pemex becomes a user Compression, Liquefaction, Decompression, Regasification Participation of different agents subject to permits regime Fist Hand Sales (Vpm) Can be made by subsidiary companies on behalf of the State Subject to the principle of asymmetric regulation Retal Considered added sale Pemex affiliates are allowed to sale subject to asymmetric regulation Participation of different agents subject to permits 4 Navigating Mexico s Energy Reform

5 Integrating the Value Chain The Energy Reform intends to promote the participation of numerous market players in all segments of the value chain. Raw Material Processing Imports Transport Storage Distribution Sales Sources: Pemex, SENER, EY Mexico: Key Oil Industry Indicators Natural Gas (1995 = 100) 300 2, , , , Production Proven Reserves Demand Net Imports (RHS) bf/d Mexico: Natural Gas Supply by Source Production Sources: Pemex, SENER, EY Net Imports bf/d 12 Mexico: Natural Gas Demand by Sector bf/d 3.5 Mexico: Natural Gas Imports by Type Oil Sector Power Stock Chg. & Stat. Adj. Sources: Pemex, SENER, EY Industrial Res./Serv./Transp Pipeline LNG Sources: Pemex, SENER, EY The Natural Gas Market 5

6 6 Navigating Mexico s Energy Reform

7 What to Expect? The opening of the natural gas market will provide a bridge between the oil and electricity sectors. According to the Mexican authorities, new guidelines should be issued by September Their purpose will be to promote the development of a competitive domestic natural gas market. Indeed, as the gas pipeline network is expanded, the number of arbitrage points will increase, with imported gas (by pipeline or vessel) competing with gas produced by Pemex. These arbitrage points will help determine reference prices in their respective regions, based on the source of gas and transportation costs. Currently, the main arbitrage points, according to SENER, are located in northern Tamaulipas State, Encino (Chihuahua State), the Bajio region and Cactus (Chiapas State). Gas suppliers, including private companies, will be able to reserve transportation capacity in the Natural Gas Transportation and Storage System (Sistrangas). As a result, the market will eventually move to prices determined by supply and demand, rather than being based on First Hand Sales prices (VPM for its Spanish acronym), which are essentially the maximum prices at which Pemex can sell natural gas. The transition, though, will be gradual. Liquidity will build up as private companies invest in the industry. One of the biggest challenges is carrying out open seasons, through which transportation capacity is reserved. Open seasons, which are expected to start in September 2016, will be administered by CENAGAS, which is in charge of managing the national pipeline grid. CENAGAS will carry out a Round Zero, in order for Pemex and CFE to reserve capacity for their own needs, followed by two rounds for private distribution companies: Round One for those with so-called acquired or legacy rights and Round Two for other users. Contacts Alfredo Álvarez Energy Sector Leader alfredo.alvarez@mx.ey.com Rafael Aguirre TAS Partner rafael.aguirre@mx.ey.com Gilberto Lozano Advisory Partner gilberto.lozano@mx.ey.com Rodrigo Ochoa Tax Partner rodrigo.ochoa@mx.ey.com Gerardo Flores Assurance Partner gerardo.flores@mx.ey.com Francisco Forastieri Legal Partner francisco.forastieri@mx.ey.com The Natural Gas Market 7

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