Editor’s Note: This is one of a 14-piece series NGI undertook as the energy industry readied for the new year, with Lower 48 natural gas and oil supply continuing to surge in an uncertain environment as liquefied natural gas exports ramp up, Mexico markets remain shrouded and stakeholders demand more value. Get your complimentary copy of NGI’s 2020 Special Report today.

As 2020 dawns, NGI’s Mexico GPI looks at the stories sure to be at the center of the Mexican natural gas market in the upcoming year.

Key pipelines are set to come online in Mexico. The final part of the Wahalajara system, the 0.9 Bcf/d Villa de Reyes-Aguascalientes-Guadalajara pipeline being developed by Mexican company Fermaca, should be online by the end of March. When this happens, the system would be complete and allow gas from the Permian Basin in West Texas to reach Guadalajara, Mexico’s second largest city.

CEO Manuel Bartlett of Mexican utility Comision Federal de Electricidad (CFE), the anchor customer of the project, earlier in 2019 said he thought the Wahalajra pipelines “were the most important” in the system of pipelines in the country, as they would provide service to the centers of greatest consumption of natural gas in its industrial heart.

With prices at the Waha hub in West Texas again dropping into the negatives at the end of 2019, the opportunity for Mexican consumers with the startup of the line cannot be overstated.

Infraestructura Energética Nova (IEnova), the Mexico subsidiary of San Diego, CA-based Sempra Energy, Canada’s TC Energy Corp. and Mexican firm Grupo Carso are also developing additional pipeline projects.

The Grupo Carso Samalayuca-Sásabe pipeline is expected to come online early in 2020. However, the Tuxpan-Tula (TC Energy), Tula-Villa de Reyes (TC Energy), and Guaymas-El Oro (IEnova) lines all are experiencing lengthy delays because of social issues and other objections to their construction, and are unlikely to be completed in the next year.

Another key pipeline is the planned interconnect between the national pipeline system Sistrangas and the isolated Mayakan pipeline in the Yucatan. The project has been set out as a priority for Sistrangas operator Centro Nacional de Control del Gas Natural (Cenagas), and could see the light of day in 2020, helping to ease an energy supply crunch that has severely hobbled the peninsula in recent years.

As it stands, Mexico remains a stable environment for natural gas investment in the context of its regional peers. Latin American nations experienced considerable upheaval in 2019, with protests and destabilizing riots erupting in Bolivia, Chile, Colombia, Ecuador and Venezuela. Mexico, however, though still suffering from high levels of violence, was largely absent from this trend.

Mexicans remain optimistic about President Andrés Manuel López Obrador, with his approval ratings, while down slightly from his first few months in office, still strong and stable at 65-70%. However, with a gross domestic product that grew 0% in 2019, dropping levels of foreign investment, and an economy that has de-linked from the economic momentum of the United States for the first time in decades, how long can this last?

One of the major pending issues in Mexico’s energy market in 2019 was the precarity of the Yucatán Peninsula’s energy system. The connection of the Mayakan pipeline to the Sistrangas would allow gas from other parts of the country to reach the area; but its success would depend on pending adjustments to the Cempoala compressor station, which are expected to be complete in the first half of 2020. Once Cempoala is ready, the interconnect would allow gas from Texas to reach the peninsula, thanks to the September startup of the marine pipeline.

There are other areas of Mexico that lack access to natural gas, including in the states of Oaxaca and Chiapas in the south. López Obrador has talked about developing a pipeline that would cross the Mexican isthmus to serve these states, and then continue south toward Central America. There has also been talk of a floating storage and regasification terminal (FSRU) set for the Dos Bocas refinery project in Tabasco state. Will these projects go ahead and what will this mean for the gas sector?

During 2019, Lopez Obrador’s government sent mixed signals about the way forward for the natural gas sector. While some were open to the idea of hydraulic fracturing (fracking), including the Energy Minister Rocío Nahle. Others, including the president, were adamantly against it. The same can be said of numerous issues in the sector.

Going into 2020 there are more questions than answers in the upstream segment as it pertains to natural gas. Will Mexico restart its oil and gas rounds? Will the government permit fracking? What moves will López Obrador undertake to try to lure back investment in the sector?

One thing is certain: the main hope for reversing declining natural gas production in Mexico is the Ixachi field in Veracruz. Petroleos Mexicanos (Pemex) has allocated more than $1 billion in capital expenditures (capex) in 2020 for Ixachi, the most significant gas-focused project in its exploration and production portfolio.

According to the Pemex 2019-2023 business plan, Ixachi gas production is forecast to reach 400 MMcf/d by end-2020, from about 100 MMcf/d currently. Pemex expects to reach peak gas output of 638.5 MMcf/d at Ixachi by 2022.

At the end of 2019, Cenagas opened bidding for natural gas supply to ensure the Sistrangas pipeline system maintained system balance, a sign that Cenagas remains committed to a competitive and open natural gas market and possibly a sign of new open seasons to come.

“Cenagas seeks to comply with its objective of guaranteeing the continuity and security of the use of services on the Sistrangas through the acquisition of gas supply which will allow for systemic and operational balance on the pipeline system,” it said in marking the announcement.

The pipeline operator is calling on shippers to present proposals of natural gas supply through Jan. 31, with the understanding that the supply would be used solely when the operational conditions on the Sistrangas require it. Supply should be available starting Feb. 1, ending on Dec. 31, 2020, with the option to extend annually. Cenagas would announce the need for supply on a daily basis through an electronic platform being established, with the lowest price offer for the volume needed winning the daily bid.

“This project is designed to purchase gas for balancing to maintain optimal conditions on the Sistrangas and to balance the system,” Cenagas’s Luis Bruno Moreno Ruiz, head of planning and system management, told NGI’s Mexico GPI. “Today we have just one supplier to help with balancing,” he said, referring to CFE and the use of liquified natural gas (LNG) imports to fulfill the need.

Mexico has no underground natural gas storage capacity, relying on LNG and line packing for system balancing. Another question natural gas participants will thus look out for is whether storage will finally be developed in Mexico in 2020.

Cenagas picked a field to tender for a storage project in 2018, but the initiative was shelved by the new government.

“One private initiative with important potential is Mirage Energy Corp.’s project at the depleted Brasil field close to the border,” according to energy expert Eduardo Prud’homme. “It will be interesting to see if the new government grants rights to the field. Storage technically is an activity open to private enterprise under the energy reform.”

Will natural gas distribution to residential customers also improve in 2020? IEnova’s CEO Tania Ortiz told NGI’s Mexico GPI that she thinks this will be the case as citizens eschew liquefied petroleum gas (LPG) and wood as fuel.

“Another segment that I believe will continue to grow is distribution,” Ortiz said. “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.”