Demand for natural gas in the southwest Mexico city of Guadalajara, the country's second-largest city, is not being economically met despite the recent completion of the final segment of a long-awaited pipeline system to carry gas from the Waha hub in West Texas, a source for some of the cheapest gas available.
The continuous flow of gas has not been registered towards developer Fermaca´s Villa de Reyes-Aguascalientes-Guadalajara pipeline, data compiled by S&P Global Platts Analytics shows. VAG entered operation in late March, according to Fermaca.
But cheap gas for Guadalajara's industry's and businesses is on hold while Mexico reconsiders its gas strategy with an eye to supporting state-run electric utility CFE and state oil and gas company Pemex.
"We have been waiting for that gas for months. We already have clients with signed contracts who are expecting it," said a Guadalajara-based executive whose company has subcontracted supply from Fermaca and who spoke on condition of anonymity.
The 379-km VAG is the southernmost segment of Fermaca´s Wahalajara system, which crosses six states in northern Mexico to connect with both the Trans Pecos and Roadrunner pipelines in the US. Most of the capacity on VAG has been contracted by CFE.
At one time, the intended destination for some of the gas to flow on VAG was a power plant to be built by CFE in the region. That project was scrapped because of budget constraints, according to Rosanety Barrios, a Mexico-based independent energy who spoke with S&P Global Platts. Barrios was among government officials in the past administration of President Enrique Pena Nieto. His administration was in charge during much of the pipeline infrastructure buildout in Mexico.
The 2013 energy reform carried out by Pena Nieto ended decades of monopoly control by CFE and Pemex and attracted roughly $200 billion in investment commitments in infrastructure.
According to Mexican law, gas system operator Cenagas should force CFE to release its VAG capacity to the market if it does not use it under a "use or lose" premise. However, Barrios told Platts the government will push with its plan to support CFE using its influence even on bodies that are supposed to act independently.
"They are not going to let go of that pipe," he said. "They understand its importance and how much power it gives them over industry and business in the area."
The government has recently issued regulationsintended to curb participation of private energy generation. The administration of President Lopez Obrador asserts that energy demand destruction caused by the coronavirus pandemic has threatened electricity distribution grid reliability. Would-be competitive generators are generally renewables-based – solar and wind – providing intermittent power that is a challenge to balance on the power grid.
Fermaca did not respond to repeated requests for comment, while a CFE spokesman declined to comment.
Underserved
The Pacific Coast state of Jalisco, where Guadalajara is the capital, has historically had limited access to gas supplies as the distribution system, owned by Pemex before the 2013 reform and now called Sistrangas, was instead designed to move domestic production in Tabasco and southern Veracruz across Mexico's Central region. Jalisco has consequently relied on surrounding infrastructure to meet its energy needs. It uses electricity generated at a gas-fueled power plant in the neighboring state of Colima. The plant burns regasified LNG from the Manzanillo LNG terminal.
In 2019, gas consumption in Jalisco averaged 100 MMcf/d, according to state government data. Total gas pipeline deliveries averaged 170 MMcf/d and were 33% below historic levels, Platts Analytics data shows. The trend has continued into 2020, with a 34% (72 MMcf/d) deficit to the five-year average, according to Platts Analytics.
Mexico's gas output has been cut in half over the past decade from 5.0 Bcf/d in 2010, leaving less supply for areas such as Guadalajara, located far from production sites. Production is not expected to have a substantial recovery in the short term.
Overcharged
Companies in the Guadalajara area are being forced to continue using Pemex gas, according to an executive based there and a Jalisco state official.
"If no gas is available from Waha, I may have to ask Pemex to supply the gas," said the executive, whose company has signed supply contracts with local users.
Gas delivered by Pemex at the El Castillo interconnection near Guadalajara was $3.3174/MMbtu, according to the latest available data by Pemex. Waha settled July 15 at $1.38/MMbtu, Platts Analytics data shows.
Even Tierra Mojada, a recently finalized 875-MW, combined-cycle plant build by Fisterra Energy in Zapotlanejo,near Guadalajara, has been receiving gas from the grid, according to Sistrangas, despite having been designed to operate with Waha gas.
A Fisterra spokeswoman did not respond to requests for comment.
Consultants pointed out this would not be the first time this administration opts to pay for pipeline capacity it does not use.
Since its inauguration in September 2019, the 2.6 Bcf/d Texas-Tuxpan marine pipeline,which brings gas to the Gulf of Mexico area, has gone underutilized as the government has yet to build other important segments of the system to facilitate gas usage. In July, Platts Analytics data shows 717 MMcf/d flowing through the 497-mile line, which has also reduced imports at the Ramones system in the north of Mexico.
Mexico´s total gas demand stood at 8.27 Bcf/d on July 15, while domestic production and imports averaged 8.34 Bcf/d., according to Platts Analytics data. Based on the 2019 public consultation by pipeline grid operator Cenagas, domestic gas demand is expected to reach 14.5 Bcf/d by 2024.
