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Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, is offering the following question-and-answer column as the first in a regular interview series with experts in the Mexican natural gas market.

The first Q&A is with Meney de la Peza, who heads the hydrocarbons unit at Comisión Reguladora de Energía (CRE). Previously, she led CRE’s natural gas unit. The CRE, an autonomous regulatory agency roughly analogous to the U.S. Federal Energy Regulatory Commission, oversees natural gas regulations and permitting in Mexico. It also publishes the IPGN monthly natural gas price index, a compilation of post-transaction prices reported anonymously by shippers.

NGI: Under what terms are companies currently buying and selling gas in Mexico?

de la Peza: The buying and selling of natural gas in Mexico requires a permit from the CRE, but it is an activity with very small regulatory involvement. There isn’t a regulatory obligation to carry out transactions with the CRE under specific terms. There is the commercial freedom for every vendor under which terms to buy gas.

In the Mexican market, a lot has been done, and there is still a lot to be done. There has been an important increase in the number of new players and a much larger amount of transactions. Historically in Mexico, the largest seller was Pemex and the contracts were quite standard. The contracts were for the purchase of fixed amounts of natural gas for a certain amount of years. There were few alternatives and contractual schemes available.

Through the liberalization of the market, there has been a lot of advancement, particularly in regards to the vendor permits offered by Pemex’s refining branch, known as Pemex Industrial Transformation (TRI), beginning in 2015. To date, Pemex has since given up 40% of its volume of contracts to other marketers, which is a sign that there are important volumes of natural gas to be commercialized that is being done by other parties and not Pemex. They are offering new contractual selling and buying schemes in the market, which has made for a more developed market.

I think there is still room for growth in the amount of transactions. Some of the users are still conservative and prefer to have their guaranteed purchases of gas and make monthly orders, for example. Some are still using schemes that are more rigid, but there have been definitely advances in terms of players and transactions.

For example, vendors that have permits to commercialize natural gas report their number of transactions to us at the CRE each month. We then take the number of transactions to determine an average which we use to calculate prices that we use to set the IPGN. We have seen an important increase in the number of transactions reported. In 2016, there were 824 transactions reported in the entire year. In 2018, there were 3,128; almost three times the amount of transactions reported. That indicates more liquidity and that users are starting to buy natural gas in more flexible schemes and are signing fixed contracts with providers. It is a sign of more sophisticated activity both by the users as well as sellers. It is activity we don’t regulate, and just have the responsibility to report on. The terms of the contracts nor the price are regulated.

NGI: How are contracts being signed? Are there more monthly than daily or weekly?

de la Peza: The information we have, which is reported to us, is done in daily transactions. These include spot transactions, as well as things like gas deliveries for the following month, etc. We are still processing the information and at times it isn’t completely reliable because vendors don’t report all of their information to us consistently, which is something we are still working on. Based on this, I wouldn’t want to make a conclusion on what is the most common contractual form being used.

What I do know to be a fact is that the number of transactions is evolving and being done in a more varied way. This includes contracts signed with or signed by Pemex, for example. Many of the contracts that Pemex signs are annual, and the large part of the orders that Pemex receives are monthly, for fixed monthly quantities. I think that the new marketers that have entered have more experience in developed markets, such as the U.S. and others. They are offering users different alternatives in terms of the transactions that can be carried out. I think there are new types of transactions that are taking place in the market, though this is not something that the CRE has concrete data for so far.

To read the full article and gain access to more in-depth coverage including natural gas price and flow data surrounding the rapidly evolving Mexico energy markets, check out NGI’s Mexico Gas Price Index.