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CRE Looks to Open Energy Markets to Meet Growth

CRE Looks to Open Energy Markets to Meet Growth

Mexico's natural gas market will grow at an annual rate of 9% over the next decade, and electricity demand will grow about 6% a year - nearly triple the U.S. demand in many areas. But the country is far from ready to meet its soaring energy needs, and while it has to improve its basic service, it also wants more private investment.

But private investment won't come without a few carrots, such as open and competitive gas and electricity markets, said the director of Comision Reguladora de Energia's natural gas division, Alejandro Brena, at the 4th Annual Mexican Energy 2000 conference in Houston last week. The CRE, created in 1994 under Mexico's state-run oil and gas system, is working to structurally reform the electricity market and consolidate the gas market, he said. But there are many things to do before the country has an efficient system that can provide reliable service to end-users.

Since he joined CRE in 1996, Brena has been responsible for advancing the country's natural gas regulation, implementing the international bid processes in 16 geographic zones for gas distribution, issuing transportation and distribution permits and supervising the compliance of permit holders. CRE's mission is to foster productive investment and efficient development to benefit customers. Electricity and natural gas are its core target areas.

Encouraged by the investment growth in the country's energy infrastructure, Brena stressed that many challenges are ahead for Mexico's natural gas and electricity industries that need to be addressed to meet future industrial and residential demands.

Without strengthening the regulatory structure and removing the barriers now in place in Mexico, Brena said that the energy sector would not be able to meet the needs of the country in an efficient way or through quality of service. "There is a need to increase gas production to meet the expected growth rate," he said. "Industry demand and power generation are the key players."

CRE is working to advance the country's current regulatory structure and remove barriers that limit the expansion and competitiveness of the natural gas industry. "Open and competitive gas and electricity markets are fundamental to meet the challenges that face Mexico's energy sector."

Along with regulatory changes, CRE is pushing for a new price index because the current index is dictated by the U.S. market, with the United States setting exports market and regulatory conditions. Brena said seasonal changes in the United States may have little or no effect on Mexico, but they "impact severely across nationwide gas users." Low storage problems in the United States also adversely affect Mexico and cause prices to rise, he said.

"Failure to implement a new price index may reverse the increased demand for natural gas," said Brena.

Marketing changes also have to be made, he said, because "monopolistic activities in production, transportation and marketing" prevent transparent rules that allow activities by outside companies. "The lack of a marketing policy is the main reason why a transmission project from the United States to Monterrey has not been accomplished."

Another issue CRE's Brena wants to see implemented is a self-use permit, which he said would bring competition for LDCs. Even though a potential problem exists where users could form a "self-use society" and "severely threaten LDCs by taking large industrial volumes," Brena said a good balance is necessary to promote competitive prices and the growth of industrial parks.

Mexico has to develop more storage facilities, too. "At the current demand rate, the need for large storage soon will be necessary," said Brena. "Gas storage will bring stability to Pemex's system, to gas prices under moderate storage scenarios and allow better use of capacity of the transportation system." Brena stressed that a storage system infrastructure was "essential" if Mexico wants to "adequately integrate into a true North American gas market." Pemex

The need to develop benchmark data also is crucial to a growing marketplace, he said. By 2001, the fifth-year revision will end for several LDCs in Mexico, he said, and the revision will entail an evaluation of rates, performance-based analysis, expansion plans and investment commitments. By putting together correct data, CRE will be able to determine its target parameters for the following five years.

Carolyn Davis, Houston

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