Mexico’s Comisión Federal de Electricidad (CFE) is preparing to hold auctions in the United States and Mexico to sell natural gas capacity to third parties.

Mexico

The state-owned company seeks to develop a secondary market to improve its overall profit margins, Miguel Reyes, CEO of CFE International, said during the 8th Mexico Infrastructure Projects Forum in Monterrey, Mexico.

In “the next few days,” CFE International LLC, the U.S.-based private commercial arm of the state electricity company, and its Mexican counterpart CFEnergía, will announce plans for “an auction that contributes to the development of a natural gas secondary market” and seeks private sector buyers in both countries, Reyes said.

“We wanted to announce this auction for natural gas capacity to members of the U.S. and Mexico sector so that they will be aware of this in case of possible interest for their industries in the short term,” Reyes said during a presentation last Thursday (Jan. 26). “The auction is going to be in real time for all who want to participate in the U.S. and Mexico, and the gas that we have in excess will be assigned to the winners at better conditions than it was offered to the CFE.”

Reyes explained in Monterrey that, as a result of numerous long-term contracts signed during the previous administration, CFE has capacity that exceeds the needs of the state company. 

CFE will use contracted gas to supply its power plants, fertilizer plants, new projects and “members of the private sector” through a secondary market of natural gas in Mexico, he said.

The excess capacity that CFE plans to auction will be made available at specific hubs and delivery points in the United States and Mexico where interested companies can bid on certain quantities of natural gas to supply their needs, he said.

[Mexico Matters: Cross-border energy trade between the U.S. and Mexico reached $42 billion last year. Understand this burgeoning trade flow — the projects, politics and natural gas prices — with NGI’s Mexico Gas Price Index. Know more.]

“We think this could create a dynamic that would allow traders to bid on the excess gas we have been assigned for its use in the private sector,” Reyes said. “This would create a situation in which we would benefit by putting that capacity up for auction and by developing a secondary market, and the members of the energy and industrial sectors would also benefit through the availability of natural gas at a cheaper, discounted rate.”

Reyes said that CFE is continuing to seek partnerships and investment opportunities with members of the private energy and industrial sectors in both the United States and Mexico, and that the planned auctions represent the latest part of the plan.

“In approximately the last year and a half, we have substantially increased our sales and relationships with the private sector,” Reyes said. “We are favoring strategic alliances, such as in the natural gas industry, as well as other opportunities, to continue to guarantee Mexico’s energy security.”

CFE’s announcement of the planned auction for excess capacity and development of a secondary market was well received by members of the natural gas industry at the conference.

Eduardo Buelna, a director at BP plc’s North Americannatural gas trading affiliate, said these plans to auction excess natural gas capacity would be “very good for the entire industry” and an important development opportunity for the Mexican state company.

“It is exciting for us to hear about the development of a secondary market,” Buelna said. “We are always keeping an eye on what offers are published and what’s available in the market, which helps to identify where demand exists in the market.”