Mexico’s natural gas market will grow at an annual rate of 9%over the next decade, and electricity demand will grow about 6% ayear – nearly triple the U.S. demand in many areas. But the countryis far from ready to meet its soaring energy needs, and while ithas to improve its basic service, it also wants more privateinvestment.

But private investment won’t come without a few carrots, such asopen and competitive gas and electricity markets, said the directorof Comision Reguladora de Energia’s natural gas division, AlejandroBrena, at the 4th Annual Mexican Energy 2000 conference in Houstonlast week. The CRE, created in 1994 under Mexico’s state-run oiland gas system, is working to structurally reform the electricitymarket and consolidate the gas market, he said. But there are manythings to do before the country has an efficient system that canprovide reliable service to end-users.

Since he joined CRE in 1996, Brena has been responsible foradvancing the country’s natural gas regulation, implementing theinternational bid processes in 16 geographic zones for gasdistribution, issuing transportation and distribution permits andsupervising the compliance of permit holders. CRE’s mission is tofoster productive investment and efficient development to benefitcustomers. Electricity and natural gas are its core target areas.

Encouraged by the investment growth in the country’s energyinfrastructure, Brena stressed that many challenges are ahead forMexico’s natural gas and electricity industries that need to beaddressed to meet future industrial and residential demands.

Without strengthening the regulatory structure and removing thebarriers now in place in Mexico, Brena said that the energy sectorwould not be able to meet the needs of the country in an efficientway or through quality of service. “There is a need to increase gasproduction to meet the expected growth rate,” he said. “Industrydemand and power generation are the key players.”

CRE is working to advance the country’s current regulatorystructure and remove barriers that limit the expansion andcompetitiveness of the natural gas industry. “Open and competitivegas and electricity markets are fundamental to meet the challengesthat face Mexico’s energy sector.”

Along with regulatory changes, CRE is pushing for a new priceindex because the current index is dictated by the U.S. market,with the United States setting exports market and regulatoryconditions. Brena said seasonal changes in the United States mayhave little or no effect on Mexico, but they “impact severelyacross nationwide gas users.” Low storage problems in the UnitedStates also adversely affect Mexico and cause prices to rise, hesaid.

“Failure to implement a new price index may reverse theincreased demand for natural gas,” said Brena.

Marketing changes also have to be made, he said, because”monopolistic activities in production, transportation andmarketing” prevent transparent rules that allow activities byoutside companies. “The lack of a marketing policy is the mainreason why a transmission project from the United States toMonterrey has not been accomplished.”

Another issue CRE’s Brena wants to see implemented is a self-usepermit, which he said would bring competition for LDCs. Even thougha potential problem exists where users could form a “self-usesociety” and “severely threaten LDCs by taking large industrialvolumes,” Brena said a good balance is necessary to promotecompetitive prices and the growth of industrial parks.

Mexico has to develop more storage facilities, too. “At thecurrent demand rate, the need for large storage soon will benecessary,” said Brena. “Gas storage will bring stability toPemex’s system, to gas prices under moderate storage scenarios andallow better use of capacity of the transportation system.” Brenastressed that a storage system infrastructure was “essential” ifMexico wants to “adequately integrate into a true North Americangas market.” Pemex

The need to develop benchmark data also is crucial to a growingmarketplace, he said. By 2001, the fifth-year revision will end forseveral LDCs in Mexico, he said, and the revision will entail anevaluation of rates, performance-based analysis, expansion plansand investment commitments. By putting together correct data, CREwill be able to determine its target parameters for the followingfive years.

Carolyn Davis, Houston

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