Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, is offering the following question-and-answer (Q&A) column as part of a regular interview series with experts in the Mexican natural gas market.
This 20th Q&A in the series is with Tania Ortiz Mena, Chief Executive Officer of Sempra Energy’s Mexico unit, known as IEnova (Infraestructura Energética). Ortiz was appointed CEO of IEnova in Sept. 2018 after serving as the company’s chief development officer, responsible for the company’s business development and commercial areas, since 2016. She has been with IEnova since 2000, and has held the positions of manager, project director, director for government and regulatory affairs, vice president of external affairs and vice president for business development and external affairs. Prior to joining IEnova, Ortiz worked for PMI, Pemex’s international trading subsidiary, from 1994 to 1999, where she was responsible for the residual oil products international trading area.
She is currently a board member of the Mexican Natural Gas Association, the World Energy Council - Mexico Chapter, and the U.S.-Mexico Energy Business Council. Ortiz also is a member of the Mexican Council for International Relations and was president of the board of Mexico’s Natural Gas Association from 2015 to 2016.
Ortiz holds a bachelor’s degree from Universidad Iberoamericana in Mexico City and a master’s degree in International Relations from Boston University.
NGI: What is the importance of natural gas to the Mexican economy and what are your thoughts on the development of the national natural gas market in recent years?
Ortiz: Natural gas is essential to promote the growth and development of the Mexican economy. More than half of the power generation in Mexico utilizes natural gas. If we add in the fact that natural gas is the main fuel used in the manufacturing industry, we can assert that natural gas is one of the principal motors of the economy, generating economic and social development.
After more than 20 years in the industry, I have had the privilege of observing the growth of the natural gas market in Mexico. I consider that one of the most relevant changes that has contributed to the market’s development is the expansion of the natural gas pipeline system. Today, Mexico has approximately 20,000 kilometers (~12,500 miles) of natural gas pipelines supplying a large area of the country. Another positive change is the legal separation of transportation and marketing activities as it promotes the involvement of more participants, generating competition. Additionally, open access rules have strengthened the market because they provide certainty for long-term commitments.
Fortunately, the existing infrastructure has allowed, at a time when national production has dropped, the transportation of natural gas from the south of the U.S., the region with the lowest prices internationally. There are some areas in Mexico, mainly the south and southeast, that require transportation infrastructure.
NGI: In your opinion, where is the natural gas market in Mexico headed and what can we expect in the next few years?
Ortiz: In my opinion, the natural gas market is in transition, therefore it will maintain a constant growth for a long period of time. The Mexican market continues to offer many investment opportunities as an increasing demand requires new infrastructure. Transportation pipeline systems will require interconnections to transport gas to the regions of the country that are currently isolated or with limited access.
Another segment that I believe will continue to grow is distribution: today, approximately only 8% of Mexican homes have direct access to natural gas as most homes still use LPG and firewood as fuel. There is an opportunity to provide a reliable and cleaner source of fuel to Mexican consumers.
One more relevant segment to be developed is natural gas storage; there is no inventory capacity in Mexico.
As you can see, the opportunities to offer a reliable supply of a clean and safe fuel to more Mexicans are significant. The pace of market development will depend to a large extent on public policies established to promote investment.
NGI: If you had to describe the Mexican natural gas market in a single word, what would it be and why?
Ortiz: Development. This seems like the ideal word to describe the natural gas market in Mexico.
Several studies have indicated a high correlation between the GDP and access to natural gas. The studies concluded that the states with more access to gas have higher economic growth indexes than those without or limited access to gas.
The states with access to natural gas offer higher social development reflected in the well-being of the population; better access to public services, better access to health services and more and better infrastructure.
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NGI: What are the current strengths of the Mexican natural gas market?
Ortiz: Without question the principal strength of the Mexican natural gas market is its direct and reliable access to gas with the lowest prices in the world. Mexico has taken advantage of its privileged geographical location and has promoted the development of infrastructure to efficiently access major gas production hubs with the lowest prices. This strength has allowed us to offer Mexican industry a safe and clean fuel, and an efficient supply at prices that are competitive globally.
Another great strength lies within the nation’s natural resources. Mexico has abundant reserves of oil and gas that are yet to be developed. These reserves present a great opportunity for the country to increase its energy security.
NGI: And the weaknesses?
Ortiz: Significant infrastructure is still required to produce, transport, store and distribute natural gas to satisfy a growing demand for power generation and for industrial and residential consumption.
New infrastructure is necessary in the south-southeast of our country; the industrial sector is constantly requesting more access to natural gas supply for their productive processes. Gas infrastructure is also required as a reliable source of clean fuel for power generation.
Additionally, I think it is necessary to have strategic and operative reserves of natural gas to achieve energy security. Natural gas storage capacity is key as it will not only maintain supply in case of an unexpected event, but also will contribute to balance the system.
In Mexico, natural gas storage capacity doesn’t exist. Given the importance of gas for our economy, not having natural gas inventory positions Mexico in a very vulnerable situation in case of a contingency. We should continue to take advantage of the convenient access that we have to competitive natural gas by creating reserves, thus increasing energy security.
NGI: In your opinion, what projects or initiatives would boost growth in the Mexican natural gas sector?
Ortiz: I think public policy focused on achieving energy security, as well as clear regulation that offers certainty to investors would, without question, trigger the development of more infrastructure to produce, transport, store and distribute natural gas.
The role of Cenagas as system operator is also critical to achieve energy security.
Collaboration between the public and private sector is essential to create adequate planning to develop the available resources and further consolidate the natural gas market. The legal framework is there, the interest and confidence of the investors is there; we must align the objectives of the companies and the government to continue to boost the energy sector and further develop the Mexican economy.
NGI: On the IEnova investors call the final week of October, the company referred to the agreement with CFE as a “win-win” for all involved in the contract renegotiation process with the CFE. Why does the company consider the renegotiations a “win-win” and what was learned from the process?
Ortiz: At IEnova we are committed to the development of our country. The dialogue that we had with the President and with other government officials gave us the opportunity to emphasize our commitment. We were able to address the government’s concerns and to prove that we are a reliable partner aligned with their priorities. We had the chance to show that we can contribute to the country’s progress by developing and operating infrastructure that provides access to safe, reliable, clean energy at competitive prices for the Mexican industry and the Mexican people.
The agreement also provides certainty to all market participants and will contribute to the government’s goal of achieving energy security and maintaining reliable sources of energy with the most competitive costs. We will continue to develop critical infrastructure for the country. For these reasons, we believe the agreements were a win-win for everyone involved in the conversations and negotiations.
NGI: What is the status of IEnova’s marine pipeline and how much gas is currently flowing?
Ortiz: After IMG, the JV between TC Energy and IEnova, reached a final resolution with the government, the marine pipeline began commercial operations on Sept. 17. It’s transport capacity will allow for the substitution of LNG imports that are significantly more expensive than natural gas and will contribute to supply natural gas for CFE’s power generation plants located in the central region of the country.
NGI: In recent years, there have been several disputes with local communities over infrastructure projects. What can Mexico do better to mitigate these disputes?
Ortiz: Infrastructure projects have an impact in the communities where they are developed. It is essential to establish mechanisms that not only measure projects’ impact on the communities, but that contribute to deliver a direct benefit to the communities where they are developed.
At IEnova, we are an integral part of the communities where we operate. In every project that we develop, we get involved with the communities and we open various communication channels. We have a corporate Social Management System that coordinates and monitors all the activities that we perform. Our Community Attention Mechanism is a permanent channel of communication established at the beginning of a project and maintained through the life of the asset. Its purpose is to address any questions, concerns, complaints or suggestions of the communities.