Developing Natural Gas Infrastructure in the Americas: the Mexican case

1
Developing Natural Gas Infrastructure in the
Americas the Mexican case

• NARUC Committee on Gas
• Francisco Salazar Diez de Sollano
• Chairman, CRE
• July 17, 2007

2
Introduction CRE

• CRE (Comisión Reguladora de Energía) was created
  in 1992 as a consulting body to the Secretary of
  Energy. Its objective was to prepare the rules
  that would regulate the relationship between the
  States utilities and the private investors in
  the power sector.
• In 1995, the Congress passed a reform opening the
  downstream activities in the natural gas sector.
  Then, CRE was also constituted as the formal
  regulator of the energy sector and was given
  operational and technical autonomy.
• CREs mandate is to promote the efficient
  development of the activities it regulates. In
  doing so, CRE looks for a balance between the
  interest of the consumers and that of the
  investors.

3
CREs regulation powers
4
Natural gas demand

• According to the Ministry of Energy(1), natural
  gas demand was 6.549 bcfd in 2006 .
• 48 corresponded to the oil sector 35.7 to the
  power sector 14.6 to the industry (including
  Pemex Petrochemicals), and 1.6 to residential
  and other services.
• Natural gas demand is expected to increase at an
  overall annual rate of 3.9 over the next 10
  years.
• (1) Prospectiva del mercado de gas natural
  2006-2015

5
Natural gas forecast 2005-2015
3.9
2.8
Source SENER 2006 2015 Prospectiva del Mercado
de Gas Natural
6
Gross NG Balance 2005-2015
9.49
9.11
8.69
8.28
7.90
7.58
7.05
6.65
6.61
6.11
5.72
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Natural gas for power plants

• Power forecasts 2005-2015
• 4.8 annual demand growth rate from 191 TWh in
  2005 to 305 TWh in 2015
• 24 GW of new capacity required to meet demand
  (approx. 49 of current capacity)
• CFE will install 23,545 MW during the next decade
• Combined cycle power plants will grow from 33 to
  51 of the total capacity by 2015
• 7.3 average annual natural gasgrowth over the
  next decade (for power)

8
Natural gas imports 2005-2015
Imports will peak by 2015 at 2.2 BCFD
Source SENER 2006 2015 Prospectiva del Mercado
de Gas Natural
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How to face increasing demand?

• Continue promoting private investment in
• Development of LNG terminals along both the
  Pacific and the Gulf coasts
• Pipeline infrastructure both to strengthen
  cross-interconnections and access to new LNG
  plants
• Start exploiting coal bed methane reserves
• Focus Pemexs investment in areas of paramount
  interest such as exploration and production of
  oil and gas

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CREs regulation objective

• CREs regulation must
• Ensure technical engineering excellence through
  modern standards and third-party auditing
  procedures
• Approve general terms of service that satisfy
  users needs and reflect current practice in
  industry
• Approve rates that are competitive and allow fair
  rates of return to investors
• Lead to predictable and stable regulatory
  conditions with adequate flexibility

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Permits granted by CRE
Capital
Length
Type
Licenses
Investment
(MM USD)
(km)
Transport
12,354
155
1,979
Open
1,744
11,501
20
Access
Non-Open

135
853
235
Access
Distribution
22
35,494
1,669
5
n.a.
LNG terminals
2,000
TOTAL
182
47,848
5,648
LNG total storage capacity of 1,250,000 cubic
metres
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Developing LNG terminals

• LNG project solutions are varied
• Having a predictable and transparent regulation
  gives investors and developers the flexibility to
  structure their projects in a variety of ways
• Terminal Developers (TD) can participate in
  acquisition of LNG through different schemes
• TD can sign long-term contracts with utilities
  and shippers and/or assign all or a fraction of
  the terminal capacity to a marketing function
• Shippers can arrange for their LNG deliveries or
  have the terminal/marketer do it.
• CRE has resolved all LNG applications in
  approximately 12 18 months

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Developing LNG Terminals

• Leading times are currently very long for LNG
  projects
• Construction time is typically 3 years
• There is an increasing demand of LNG terminals,
  especially in North America
• Costs of steel and concrete have increased
  significantly
• Additionally, liquefaction plants have been
  delayed in several countries

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LNG regasification plants

• Six applications submitted, 5 permits granted
• Commercial operation Sep 30th, 2006 (Altamira)
• ECA (Sempra) operation in March 2008

Libertad

• Altamira
• Shell-Total
• CFE bid
• 140,000 m3 x 2
• 0.5 - 1.1 BCFD

• Baja California
• 1. ECA (Sempra)
• 160,000 m3 x 2
• 1.0 1.3 BCFD
• 2. Shell Baja
• 170,000 m3 x 2
• 1.0 1.3 BCFD

Topolobampo


Manzanillo

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Problems

• Private projects associated to private industry
  and LDCs have had limited success
• Large consumers are reluctant to sign long term
  contracts
• Pemex supply and services are preferred
• Competing fuels are priced with non-market
  criteria
• As a result, most transport and LNG
  infrastructure is tied to CFEs need for CC
  generators and Pemex requirements
• Most of the new combined cycle power plants are
  located near Pemex transmission system or LNG
  terminals
• Both companies dominate the gas market

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Towards a new transport model

• CRE is currently reviewing PEMEX SNG (national
  pipeline system) rates, the methodology to
  calculate them and the corresponding tariffs.
• The idea is prepare SNG to be the main part of a
  National Integrated Transport System (SNI)
• Issues being discussed include using a postage
  stamp instead of a mcf mile methodology, desired
  levels of central planning and expansion of the
  system, roll-in criteria, desired degree of
  competition, etc.
• Although SENER is responsible for energy policy
  and planning, CREs opinion is central in this
  issue.

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Conclusions

• Natural gas foreseen demands growth in Mexico
  will require infrastructure to secure supply.
• So far, CRE has developed a predictable,
  transparent regulation that can accommodate
  flexibility to investors.
• Current infrastructure in Mexico has been mainly
  linked to CFE and PEMEX through long term
  contracts.
• New infrastructure to allow regional growth and
  active private participation in new projects
  poses regulatory challenges to the CRE.