Daily GPI / Markets / Markets / NGI The Weekly Gas Market Report / Mexico / NGI All News Access

Pemex Beats Expectations On Freeing Up Mexico’s Natural Gas Market

Petroleos Mexicanos (Pemex), the Mexican state oil company, has surrendered a significant share of its former monopoly of the nation’s natural gas market without question, the upstream regulator, the CRE, recently reported.

By contrast, Pemex has maintained a tight grip on the wholesale market in gasoline and other fuels, the company’s director-general, Jose Antonio Gonzalez Anaya, pointed out Wednesday.

The Pemex chief was being questioned at a meeting with the Energy Commission of Mexico’s Lower House, the Chamber of Deputies. Several companies, including such majors as BP and Chevron, have opened chains of service stations, thanks to the energy reform’s abolition of the Pemex monopoly of gasoline retail.

“We’ve now got gasoline stations that have other brands [than that of Pemex],” Gonzalez Anaya said. But, he told the legislators, “All of them are selling Pemex gasoline.”

That may be an exaggeration, but only a very slight one. Industry sources say that all but 2-3% of the wholesale gasoline market is still controlled by Pemex, together with its international marketing arm, PMI.

By contrast, the CRE last week proudly announced that through phase one of its program of the cession of natural gas contracts, Pemex handed over 32.16% of the volume of its portfolio, almost 11 percentage points more than the target.

The program, as explained by the CRE, is an asymmetric regulation that allows free-market traders to acquire 70% of the Pemex natural gas portfolio within four years.

Early this year, senior Energy ministry officials forecast that the gasoline market would be 100% free by early 2018. The problem is, as Gonzalez Anaya told the legislators, that Pemex controls all the infrastructure required for gasoline imports. Billions of dollars have been promised for investments in pipelines and the storage terminals that are needed for the creation of a truly free market, but so far none of the new projects has reached much further than the drawing board.

By contrast, the essential infrastructure for the market in natural gas is already in place, bringing the shale fields of the US to the Mexican industrial heartland at a price that Pemex could never find profitable.

Gonzalez Anaya is a star of the Mexican state sector’s financial elite, and his watchword is value, not volume. He opposes efforts to reach production targets at any cost, as his predecessors did.

With that in mind, Pemex appears to be regarding natural gas as a by-product of oil, which is where the value lies in the company’s business plans. The surplus gas can be used by Pemex for its own use, leaving any excess to be sold off on the market at what amounts to relatively throwaway prices.

That view matches the CRE’s vision of “a model based on free competition rather than one supplier” as it was under the Pemex monopoly.

The CRE said that the 32.16% market share that Pemex reached in phase one of the plan -- 1.44 Bcf/d -- was particularly positive because it mainly consisted of contracts related to the electricity sector, “thus strengthening the pairing between natural gas and electricity.”

According to CRE, the results also are consistent with the transportation capacity -- currently 42.2% -- of the Sistrangas pipeline and storage system that is reserved for Pemex and the state power utility, the CFE.

Senior politicians, such as Pedro Joaquín Coldwell, the Energy Secretary, and Juan Carlos Zepeda, president of the upstream regulator, the CNH, have voiced concern about Mexico’s growing dependency on U.S. gas.

So far, however, the auctions for blocks of shale and unconventional sources that were planned in rounds one and two of the energy reform have been cancelled, amid doubts over the regulatory framework and the political climate.

The most recent production figures from Pemex point to a very sharp decline in production of both crude and natural gas, though particularly the latter.

Crude output stood at 1.73 million b/d in September, down from 2.11 million b/d in the same month of last year, a fall of 10.4%. Natural gas production was 4.33 Bcf/d in September, down from 5.62 Bcf/d in the same month of last year, a decline of 23%.

September’s figures were skewed by storms and two major earthquakes in Mexico. But the difference in the proportions of the declines between crude and natural gas match those of recent months.

Recent Articles by Ronald Buchanan