A Look at the Natural Gas Market in Mexico

After the nationalization of the oil industry in 1938, Petróleos Mexicanos (Pemex) – the state hydrocarbons company- served as the only player in the entire value chain. The natural gas market in Mexico began opening over twenty years ago and has now evolved to an open market, providing new opportunities for infrastructure development and use, in a growing country with a population of more than 120 million people.

In 1988, the Mexican Natural Gas Association (AMGN, Asociación Mexicana de Gas Natural) emerged as the meeting point for private companies related to the distribution of natural gas in Mexico and its supply chain. Currently, the members of the association represent various segments of the industry, from exploration to distribution, including marketing, transportation and procurement, and includes more than 70 companies.

Between 1999 and 2002, legislative changes were made in order to include private entities in some activities of the energy sector. In 2013 the country underwent a historic transformation when the Government enacted comprehensive Energy Reform, which completely opened the market, creating a more dynamic natural gas industry with new opportunities to increase access to natural gas throughout the country.

The implementation of the Reform continues. In 2017, a new stage began with the liberalization of the prices of the molecule, which will foster more competition in the transportation, storage and distribution of energy, benefiting millions of families, companies and industries nationwide.

While the introduction of the new measures has contributed to opening the market to new opportunities, there is still much to be done. In Mexico, natural gas demand is approximately 8 billion cubic feet per day, and reaches only 7 per cent of the residential fuel market. AMGN is firmly committed to promoting the benefits of natural gas to seek more use of this fuel in the domestic market.

“Currently, natural gas infrastructure is available in 18 of the 32 states of the country, driven by a strong growth of the pipeline network nationwide in recent years.”

The main consumer of this fuel is the Federal Electricity Commission (Comisión Federal de Electricidad, CFE), a state owned company that provides power services to the public and industry. As of 2015, 69.1 per cent of the energy generated by CFE plants was produced using natural gas. The industrial sector is the second largest consumer followed by the residential sector, with 3.2 million customers at the end of 2015.

In terms of residential use, in addition to cost savings and safety, natural gas is better for public health, particularly because 15 per cent of Mexican households still use firewood to cook or heat water, which generates acute respiratory diseases in the most vulnerable members of the population, including women and children.

Currently, natural gas infrastructure is available in 18 of the 32 states of the country, driven by a strong growth of the pipeline network nationwide in recent years. Since 2013, AGMN affiliates in the field of transportation, have committed to investments of nearly $12 billion USD, and it is expected that in 2018 Mexico’s natural gas transmission system will total 18,700 km. This is the largest expansion of the system in decades.

While the development of natural gas infrastructure represents significant income for the country in terms of investment, the impact of access to natural gas significantly increases the growth of the GDP in the states where these projects are developed. Having access to a more efficient, affordable, clean and safe fuel tends to act as a multiplier for economic activity, leading to industry expansion and triggering the creation of jobs in areas with access to natural gas.

“As part of the consolidation of a natural gas market, storage is expected to form a crucial part of what will be required to encourage growth of a dynamic, liquid market.”

2018 is a year of major challenges. One of industry’s main objectives is to continue construction of pipelines previously tendered in order to take advantage of Mexico’s proximity to the lowest price hub on the planet and bring the natural gas that Mexico needs in order to be more competitive.

The country currently has 52,818 km of distribution system, mainly in the north and center of the country. In this latest expansion, approximately $1.84 billion have been invested and distribution companies are making efforts to reach states that currently do not have the service. Recently, the Energy Regulatory Commission of Mexico declared the country a unified geographical area for distribution purposes to encourage greater competition between local distribution companies (LDC’s) and to bring the benefits of natural gas to Mexican families more efficiently than is possible when geographical areas are limited to one service provider for an extended period of time.

As part of the consolidation of a natural gas market, storage is expected to form a crucial part of what will be required to encourage growth of a dynamic, liquid market. The Mexican government recently published a policy for the creation of strategic inventories for commentary from companies and associations. The objective of the policy is to encourage natural gas storage projects in Mexico.

There is also significant opportunity for the use of natural gas as a cleaner and more affordable transportation fuel. In Mexico, there are only 10,000 natural gas vehicles on the road compared to other countries in Latin America, like Brazil or Argentina where there are approximately 2 million NGV’s in use. This shows the potential for public transportation, industrial fleets and private cars to adapt their vehicles or to purchase new vehicles already equipped with natural gas engines.

At the AMGN, we are convinced that the opening of the energy sector in Mexico will lead to great opportunities in the future. Our affiliates take pride in being part of the country’s energy development, applying best practices that contribute to the country’s growth and benefit the communities close to natural gas projects under development and in operation. We look forward to increased integration of the Mexican natural gas industry with the rest of North America and to being part of a strong, competitive and energy rich continental market.

Lorena Patterson, President of the Mexican Natural Gas Association.