Reliance on US natural gas poses risks
Mexico's gas supply runs through one corridor
Every industrial facility in Mexico that burns natural gas, or buys grid power generated from it, is working on an assumption it has probably never priced: that molecules will keep arriving from Texas. The US Energy Information Administration put pipeline exports to Mexico at an average of 4.2 billion cubic feet per day (Bcf/d) in 2017 and 4.4 Bcf/d over January to May 2018, and reported that southern Texas alone supplied about three quarters of that volume, averaging 3.2 Bcf/d in 2017. Exports passed 5 Bcf/d for the first time in July 2018 (EIA, Today in Energy, 22 August 2018).
The question a plant director or CFO should be able to answer is narrow. If flows from south Texas are curtailed for a week in January, does the plant keep running, on whose gas, and at what cost per MMBtu. Most sites in Mexico cannot answer it, because the answer sits in a transport contract nobody has read since it was signed.
On our read, the binding risk is not the volume of import capacity, which has grown quickly. It is the deliverability of that capacity into the interior of Mexico, and the contractual position of an individual shipper on the day the system is short. Those are two different exposures and only one of them is fixed by building more pipe.
How the dependence was built
SENER's Prospectiva de Gas Natural 2017-2031 records national natural gas demand of 7,618.63 million cubic feet per day (MMpcd) in 2016 against imports of 4,168.1 MMpcd. Imports met 54.7% of consumption that year, and 87.2% of them arrived by pipeline rather than as liquefied natural gas. Domestic production had been declining since 2010 and the gap was closed with US gas rather than with new Mexican supply. Mexico's power sector made the same shift away from fuel oil over the same period, which is why gas demand in Mexico kept rising even as production fell.
Cross-border capacity expanded to match. EIA counted 7.3 Bcf/d of border-crossing export capacity as of December 2016, with a further 3.5 Bcf/d under construction and 3.3 Bcf/d scheduled for 2018 (EIA, Today in Energy, 1 December 2016). The largest single addition was Valley Crossing, running from Nueces to Brownsville at 2.6 Bcf/d and commissioned in October 2018. La Laguna to Aguascalientes (1.2 Bcf/d), Villa de Reyes to Aguascalientes and Guadalajara (0.9 Bcf/d) and Samalayuca to Sásabe (0.5 Bcf/d) followed in November 2018 (EIA, Today in Energy, 22 August 2018).
Capacity on paper is not gas at the burner tip
Western Texas is the clearest illustration of the gap between the two. Export capacity there rose, but actual flows averaged only 0.4 Bcf/d in 2017 and 0.5 Bcf/d from January to May 2018, which EIA attributed to delays in construction of the connecting pipelines on the Mexican side (EIA, 22 August 2018). A border crossing with no downstream pipe behind it moves nothing, and a facility in Bajío or central Mexico does not benefit from capacity that stops at the frontier.
The institutions that decide who gets the gas that does arrive are worth naming precisely, because industrial buyers routinely address the wrong one. CENAGAS, the Centro Nacional de Control del Gas Natural, is the independent manager and operator of SISTRANGAS, the integrated national gas transport and storage system. It allocates capacity on that system and it is the body that orders restrictions when the system cannot balance. CRE, the Comisión Reguladora de Energía, issues the transport permits and approves the tariffs and terms of service under which that capacity is sold. CFE is neither. It is a buyer and a generator, not the regulator.
Capacity is not first come, first served. Under the Reglamento de las actividades a que se refiere el Título Tercero de la Ley de Hidrocarburos (DOF, 31 October 2014), pipeline transport and distribution are subject to open access on terms that are not unduly discriminatory (Article 10), permits run for up to thirty years from the date of grant (Article 11), and capacity that becomes available is allocated through a temporada abierta, an open season conducted under the permit holder's CRE-approved terms of service (Article 74). Missing an open season means waiting for the next one or buying released capacity from a shipper who did not.
Firm versus interruptible is the line that matters
A shipper holding firm transport has a contractual right to a defined quantity. A shipper on interruptible service is curtailed first when the system is constrained, and pays less for precisely that reason. Plants that took interruptible service to avoid the reservation charge find out what they bought in the same week everyone else does.
Three items belong on a facility's file before the next winter:
- Whether the transport behind your gas supply contract is firm or interruptible, and who holds the capacity, your plant or your marketer.
- The curtailment order and notice period written into the supply agreement, and whether your supplier's delivery obligation survives a CENAGAS restriction or is excused by it.
- The cost of your alternative: hours of on-site fuel storage, the diesel or LPG burn rate that replaces gas, and the gross margin on the production hours you cannot cover.
That third line is the one a CFO can act on. A plant that knows its cost per hour of gas interruption can decide rationally whether firm transport is worth its reservation charge, and can compare that charge against on-site storage or a dual-fuel conversion. A plant that does not know it is guessing, usually in the direction of the cheaper contract.
What would make this read wrong
If the pipelines under construction into central and western Mexico enter service on schedule, physical deliverability into the interior improves and the premium those regions pay narrows. Investment in gas storage capacity in Mexico would also blunt the seasonal exposure, since storage is what turns a week-long supply interruption into an inventory drawdown. Neither development changes the concentration in the import corridor itself. Both change how much that concentration costs a given site.
Natural gas earned its place in Mexico's power mix on price and on the operating flexibility of combined-cycle plants. Both remain true. The uncomfortable part is that the same fuel now carries a single-corridor supply risk and a foreign-policy risk that no commercial counterparty in the chain has agreed to absorb.
Price your exposure before the next cold snap
Mexico Energy Partners reviews industrial gas supply and transport arrangements to establish where a facility sits between firm and interruptible service, what an interruption would cost per hour, and whether the alternatives are worth their price. An initial review needs twelve months of gas and electricity billing, the current supply and transport contracts, and the site's hourly gas consumption profile. See how this fits alongside electricity procurement for industrial sites.