The Mexican Energy Ministry (Sener) has issued the definitive version of its natural gas storage policy.
The document, issued on Wednesday (March 28), outlines the steps Mexico will take to develop underground storage facilities for strategic gas inventories within the country. Mexico has no underground storage capacity in operation or under development, instead relying on liquefied natural gas (LNG) terminals for short-term system balancing.
Through this policy, "Mexico will have a supply of natural gas to be used in emergencies," according to Sener. "In addition, it will promote the development of gas storage infrastructure that can also be used by the market."
Mexico is increasingly dependent on imported gas, mostly via pipeline shipments, to meet local demand from power and industrial consumers. Last year, imports supplied around 63% of the 8.03 Bcf/d consumed in Mexico.
In broad terms, the final policy appears to mirror the draft that the Energy Ministry released in December for public comment.
Per the policy, the Centro Nacional de Control del Gas Natural (Cenagas) is charged with developing strategic infrastructure to hold 45 Bcf of working gas in storage, equivalent to five days of demand in 2029. Likewise, Cenagas, which is the state-run operator of the Sistrangas, Mexico’s largest pipeline network, is to hold a tender later this year to develop and operate the first of these inventories.
The most notable changes are adjustments to the tender timeline, as well as clarifications in response to industry feedback received during the comment period.
In the updated document, the 45 Bcf in strategic inventories must be fully operational by 2026, rather than 2025. The policy also sets a minimum capacity target of 10 Bcf for this year’s tender, and it clarifies that the auction will only be open to depleted oil and gas reservoir sites. The bidding process would begin in September and wrap up by mid-December.
However, Cenagas may incorporate other storage technologies, such as salt domes, into subsequent tenders to reach the 45 Bcf target by 2026. These later tenders would be held between 2019 and 2024, according to the timeline.
Sener has determined that depleted reservoirs are the best option for developing strategic inventories in Mexico, citing the technology’s low installation and operating costs and annual injection/withdrawal cycles.
Over the coming months, Cenagas plans to open a data room with information regarding around 15 abandoned oil and gas fields that it has identified as potential storage sites. Companies that access the data room can nominate sites for inclusion in the first tender. Cenagas is to prepare and release the bidding documents by the end of August, according to the timeline.
By the August deadline, the policy also mandates that Cenagas organize an open season to identify demand for commercial storage, which could then be incorporated into the bidding process starting in September. Tender winners may also hold open seasons for additional commercial capacity.
Officials are betting on the strategic inventories to open the door for a commercial gas storage market to emerge in Mexico.
Reaching Private Pipeline Systems
The Energy Ministry expects to issue by mid-year a national emergency plan that would regulate when and how the strategic gas inventories are to be used.
The government expects the inventories to provide national coverage, both on the Sistrangas and on the private pipelines being developed outside of the main system. Specifically, the policy requires that Cenagas promote and, when necessary, tender interconnection projects to ensure that the inventories can reach these four private pipeline systems:
- Ojinaga-El Encino pipeline, which carries gas imported at the Texas border from the Waha hub in the Permian Basin to the Chihuahua state;
- San Isidro-Guadalajara system, which also starts at the Texas border in Chihuahua and extends into central Mexico;
- Sasabe-Mazatlan system running from the Arizona border through Sonora and Sinaloa in the northwest; and
- Mayakan pipeline on the Yucatan Peninsula in southeast Mexico.
"The interconnections between these systems and the Sistrangas will, in the first place, increase the supply sources available in all regions of the country, providing end users with the opportunity to diversify the origins of their gas consumption," according to Sener.
"In addition, it will allow the storage facilities to have greater reach and coverage in the event of a supply emergency or even provide commercial benefits to market participants."
The four pipeline networks named by the policy involve various private operators, sometimes within the same system. Not all of the pipelines involved are in service, although most are expected to come online later this year.
Cenagas is already working on interconnection projects with several operators. In a planned update to its five-year expansion plan, reviewed by energy regulators in February, the operator proposed creating three regions for storage coverage: Northwest, Northeast-West and Central-South.
The cost of developing and maintaining Mexico’s strategic gas inventories, as well as any related interconnection projects, is to be passed through to shippers on Sistrangas and the private pipelines, according to the policy.
"Cenagas, as the operator of Sistrangas, and the private pipeline operators will be required to incorporate into their tariffs the cost of developing and managing the strategic infrastructure and inventories described in the present public policy," according to Sener. "Other pipelines must transfer the sums collected to Cenagas so that it can make the corresponding payments" to the storage service providers.
The decision to "socialize" these costs among all shippers recognizes the system-wide benefits the strategic inventories would provide to Mexico’s gas pipeline networks, according to Sener officials.
The cost burden would be distributed proportionally among Sistrangas and the other pipelines, based on the share of demand served by each system. The tariff mechanisms that the pipelines implement to recover costs should also avoid duplicate charges to shippers that move gas through multiple systems, according to the policy. Any commercial storage capacity built at the strategic facilities, on the other hand, would be paid for by the users that reserve it through an open season.
Until the underground inventories are in place, Cenagas is required to contract operating inventories at the Altamira and Manzanillo LNG terminals for system balancing. The costs for these operating reserves will be covered by users that cause imbalances on the Sistrangas, according to the policy.
Sener may reevaluate the need for these operational LNG inventories once the underground facilities come in service.
The policy also mandates that pipelines, gas processing plants, local distribution companies and gas storage facilities file weekly reports, which Sener plans to use for a weekly bulletin with data on aggregate supply and demand, as well as gas inventories. The reporting obligations would take effect on Oct. 1, according to the policy.
In the coming months, Sener and the energy regulator, the Comision Reguladora de Energia, expect to publish regulations outlining the reporting requirements.