Daily GPI / Regulatory / Infrastructure / Mexico

Mexico’s NatGas, Power Market Coordination Rules Head Back to the Sener Drawing Board

The Mexican government is rethinking harmonization rules it has proposed for the natural gas and power markets, following feedback from the energy industry.

The natural gas sector had especially criticized the regulations, which the Mexico Energy Ministry (Sener) released in July as a draft for public comment.

The draft outlines rules and procedures for information sharing among market agents and coordinating gas deliveries to power plants during supply disruptions. Gas-fired generators are the leading producers on the Mexican power grid, and they are expected to increase their share of the supply mix in the coming years.

The proposed rules were drafted as a market manual, similar to a supplemental regulation under the legal framework of the Mexican energy sector. The manual would apply specifically to power plants, the electricity market’s independent system operator (ISO), natural gas pipeline operators and shippers, and local gas distribution companies.

The Asociacion Mexicana de Gas Natural (AMGN), a local industry association, argued that the manual granted the Mexican ISO, the Centro Nacional de Control de Energia (Cenace), powers beyond its legal authority. In particular, the association was concerned that the manual allows Cenace to reassign capacity on pipelines to ensure that power plants receive gas in the event of supply restrictions, according to its comments on the draft.

“One of the main criticisms this document has received is that it’s been written for Cenace and for the benefit of electric market users of natural gas, in detriment of other natural gas users,” Andrea Calo told NGI. She is director of Market Intelligence - Mexico with Customized Energy Solutions Ltd.

“The main challenge, when they finalize the document, will be being able to set forth coordination rules that are aligned with existing rules and regulations and are not discriminatory to other natural gas users,” she added.

AMGN, in its comments, also claimed that the information-sharing mandates would generate excessive regulatory burdens for pipeline operators by requiring that they keep Cenace informed of nominations and scheduling, contract information and maintenance plans, among other information. Under Mexico’s existing gas market rules, pipelines must already post most of this information on their electronic bulletin boards.

After receiving comments and meeting with industry representatives, Sener is now rewriting the market manual. The ministry must resubmit the document to Cofemer, the federal agency in charge of reviewing new regulations. Once submitted, the updated manual will remain open for public comment and, if necessary, further revision until Cofemer issues a final approval.

“We still don’t have a publication date, although we are working to have it ready as soon as possible,” a ministry spokesperson told NGI. “I expect the new version to be uploaded soon and for the manual to receive a final ruling in the next two or three weeks.”

“I’m interested in seeing what the finalized document looks like,” Calo said. “I’m sure it will look very little like the one we’ve seen, just because of the arguments that have been brought forward, especially by the natural gas market, [but] we’ll see what the document looks like when they’ve revised it.”

The coordination manual reflects both the growing relevance of natural gas in Mexico’s electricity supply and the changes ongoing in the power and gas markets as a result of the energy reforms.

Prior to the reforms, coordinating the fuel supply for Mexico’s gas-fired plants involved essentially two main actors -- federal electric utility Comision Federal de Electricidad (CFE) and national oil company Petroleos Mexicanos (Pemex).

“The natural gas contracts were negotiated between CFE and Pemex, so this was to a certain degree an in-house thing,” Calo said.

After the reforms began in 2013, however, the government began to dismantle the monopolies that CFE and Pemex held in their respective markets. Mexico’s first competitive wholesale electricity market launched in early 2016, while last March private shippers reserved capacity on Sistrangas through its first open season.

CFE and Pemex continue to be the dominant players in the Mexican energy sector, and the gas and power markets are both still in the relatively early stages of deregulation.

However, “under the new open market scheme, the fact that they’ve thought about [coordinating the two markets] and have tried to address the issue at an early stage…I think is very positive,” Calo said.

Cenace has also signed a coordination agreement with the Centro Nacional de Control de Gas Natural, or Cenagas, the operator of Mexico’s main natural gas transport system, the Sistrangas.

However, many of the gas-fired plants in Mexico currently are being developed outside of Sistrangas on private pipelines anchored by long-term transportation agreements with CFE. The power company has tendered seven of eight planned combined-cycle power plants, scheduled to come online over the next few years.

These CFE projects would add about 4,800 MW to the 73,500 MW Mexican power grid. Private developers are expected to eventually develop gas-fired plants as well.

Sener forecasts that Mexico will add nearly 20,000 MW of gas-fired combined-cycle plants by 2031. It also expects to retire about 15,800 MW of mostly coal and fuel oil generation capacity over that same period.

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