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Mexico Looks to Sort NatGas Pipeline, Storage Infrastructure Shortage in Nascent Free Market

As Mexico’s natural gas imports from the United States grow, pent-up demand remains in parts of the country that lack the necessary pipelines, according to Marcelino Madrigal a commissioner at Mexico’s Energy Regulatory Commission (CRE).

Madrigal spoke Tuesday at the Mexico Oil & Gas Summit in Mexico City. The CRE regulates the Mexican natural gas and electricity markets now emerging from state monopoly control that was lifted by the 2013 energy reform.

Imports of U.S. gas by pipeline still fall short of meeting demand, said Madrigal. “In areas of the country where there’s little in the way of pipeline infrastructure, some companies are analyzing the possibility of importing LNG,” liquefied natural gas, he said.

Earlier this month, the government’s system of controls, known as “first-hand prices,” i.e. ventas de primera mano (VPM) was abolished. “The end of the VPM system established a fundamental cornerstone of the establishment of a free market,” Madrigal said.

The first days of operations under Mexico’s new natural gas capacity reservation system have gone relatively smoothly, according to pipeline system operator Centro Nacional de Control del Gas Natural (Cenagas).

Liberated from government price controls, independent power producers (IPP) may source their fuel supplies from wherever they can, Madrigal added.

Of 31 blocks awarded in the Round Two upstream auctions, 13 were natural gas-focused. “Once these blocks are producing, they can sell their gas to whomever they want and they can build or buy power plants in order to sell electricity directly,” he said.

That could point to synergies for the operators that won blocks in the auction, which was dominated by a dynasty of industrialists whose base is within short reach of the Burgos Basin. Burgos, just south of the Texas border, is Mexico’s top producing region of non-associated gas.

The history of the development of the U.S. natural gas market took many years of deregulation, Madrigal said, but with that experience as background, the pace of change should be faster in Mexico.

Substantial hurdles remain. These include necessary infrastructure, though $12 billion of investments have already been committed in pipeline and other facilities. Storage is badly needed, he noted, but Mexico has a natural advantage in its underground saline domes.

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