Opportunities in natural gas storage
Mexico has no gas inventory behind your meter
A plant in Mexico that loses pipeline gas has no national reserve to draw on. Mexico's strategic storage target was set by SENER in the Política Pública en materia de Almacenamiento de Gas Natural, published on 28 March 2018, which requires a minimum strategic inventory of 45 billion cubic feet (Bcf), equivalent to about five days of national demand, to be in place by 2026. CENAGAS was made responsible for developing it through public tenders, beginning with a first tender for 10 Bcf of storage capacity in 2018.
Read that as an operating fact rather than a policy item. Five days is the buffer the country is aiming for, in 2026. Until then the interval between a supply interruption upstream and a production stoppage at your site is whatever you hold behind your own fence, plus whatever linepack the transporter can lend you for a few hours.
The decision this forces is unglamorous and cheap to evaluate. Every facility that depends on gas should know how many hours of production it can cover without a pipeline, and what buying more of those hours costs.
What the storage gap means in practice
CENAGAS is the independent manager and operator of SISTRANGAS, the integrated national natural gas transport and storage system. It allocates capacity and issues the restrictions that determine who is curtailed first when the system cannot balance. CRE, the Comisión Reguladora de Energía, issues the permits for transport and storage and approves the tariffs and terms of service. ASEA, the Agencia de Seguridad, Energía y Ambiente, authorizes the safety and environmental side of any storage facility. Those three, in that order, decide whether a storage project exists and what it may charge.
For an industrial buyer, the absence of system storage shows up in two places. Price volatility is the first. Without inventory, seasonal and weather-driven demand has to be met by flowing supply, so a cold week in Texas transmits directly into Mexican delivered prices instead of being absorbed by a drawdown. Curtailment risk is the second. Interruptible shippers are cut before firm shippers, and no amount of inventory the country does not have will change that ordering.
Both are manageable at site level. Neither is manageable by waiting for the national system to fix itself.
What a plant can actually hold
The realistic options for an industrial site, in rough order of cost per hour of coverage bought:
- Dual-fuel capability on boilers, furnaces or gensets, with on-site diesel or LPG storage sized to a defined number of production hours. Capital cost is modest on new equipment and higher on retrofit, and the running cost only appears when gas is unavailable.
- On-site LNG storage with vaporization, which keeps the same fuel and the same combustion behavior. It suits sites with tight process tolerances that cannot switch fuel without affecting product quality.
- Firm transport capacity held by the plant rather than by its marketer. This does not create inventory, but it moves the site up the curtailment order, which is the outcome inventory was going to buy anyway.
- Contracted storage or park-and-loan service where a permit holder offers it. Availability in Mexico is limited, which is the whole point of the 2018 policy.
The comparison to run is straightforward. Cost per hour of coverage against the gross margin on an hour of lost production. A site whose stoppage cost is high relative to its fuel bill should be buying coverage even at an unattractive unit price. A site with the opposite profile should not, and should stop treating supply security as a matter of principle.
Why storage has not been built
Underground gas storage is capital-intensive and slow. Depleted reservoirs and salt caverns need geological characterization, injection and withdrawal wells, compression, gathering and a connection to a transport system, and they need a tariff or a set of contracts capable of recovering that investment over decades. Pipelines are also expensive, but a pipeline earns from the first molecule it moves. A storage facility earns from the spread between injection and withdrawal periods, and that spread has to be wide enough and reliable enough to underwrite the capital. In a market where most gas is imported on flowing contracts, it frequently has not been.
Announced projects should be read with that in mind. Mirage Energy Corporation, a US company quoted over the counter, has proposed developing Campo Brasil, a depleted natural gas reservoir in northern Mexico, for strategic storage of approximately 786 Bcf, connected to Mexico's transport grid by its proposed Progreso pipeline system. In its annual report for the year ended 31 July 2019, filed on 21 February 2020, the company states it nominated the project for Mexico's first strategic reserve tender on 25 July 2018 and was not selected in that round. The same filing reports that the company has generated no revenue to date and that its auditors expressed substantial doubt about its ability to continue as a going concern.
That is a company proposal at an early stage of financing, not capacity a Mexican industrial buyer can plan around. Treat announced storage volumes as options on a market that does not yet exist, and size your own coverage on the assumption that none of them arrive on the announced schedule.
What to put in front of the operations committee
Four numbers, none of which require a study to produce. How many hours of gas the site can replace today. What an hour of unplanned stoppage costs in gross margin. Whether the transport behind the supply contract is firm or interruptible, and who holds it. What dual-fuel capability or on-site storage would cost per hour of coverage added. If those four are on one page, the decision makes itself, and the same page supports the related questions about permitting a gas connection or storage asset and about the concentration of Mexican supply in the Texas corridor.
Size your own coverage before the next cold week
Mexico Energy Partners reviews industrial gas supply resilience, including firm versus interruptible transport, dual-fuel options and the cost per hour of coverage each one buys. An initial review needs twelve months of gas billing, the site's hourly consumption profile, a list of gas-fired equipment with burner ratings, and the current supply and transport contracts. Related work for industrial sites is described under industrials and logistics.