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Exclusive: Mexico to tender first field for strategic storage of natural gas

The gas pipeline operator in Mexico, known as Cenagas, is also preparing the tender for a second field exhausted by December 2023

By Arturo Solis
June 26, 2023 | 04:00 AM

Mexico City — Mexico will tender the first project for the strategic storage of natural gas during 2023 with the aim of strengthening the country's energy security and reducing its exposure to climatic or geopolitical risks.

In an exclusive interview with Bloomberg Línea , Abraham David Alipi Mena, general director of the National Center for Natural Gas Control (Cenagas), said that the tender for the depleted Jaf field, located in Veracruz, and the ruling will take three to four months.

“We want to get it out as soon as possible. I can tell you that at the end of next month, ”said the official during the conversation in his office in Mexico City.

The depleted Jaf field has a storage capacity of 17 billion cubic feet, equivalent to four days' inventory of demand.

The investment required for the project is approximately US$200 to US$250 million. The recovery of the investment will be through a storage fee that will be divided among the 35 users of the Natural Gas Integrated Transportation and Storage System, a network of gas pipelines known as Sistrangas.

Alipi Mena ruled out that the cost of the project has an impact on inflation because it will be less than 1% of the natural gas transportation rate, in addition to being an obligation of the users.

Regarding the entry into operation, he said that a part of the storage in Jaf may start this year, but the full potential will be between 2026 and 2027.

"It could start operating in part in what would be this year, but its full potential will be in the following six-year period," he said.

Jaf is located 40 kilometers southwest of the City of Veracruz. It was discovered in 2003 by Pemex. which produced 12,148 million cubic feet of gas until December 2014. In 2018, Cenagas presented the bidding rules for the project, but the Government of Andrés Manuel López Obrador paused it, after having criticized the opening of the oil sector to private investment with the energy reform of the former PRI president of Enrique Peña Nieto.

Mexico is a net importer of natural gas, which generates 60% of its electricity with this hydrocarbon. Despite its significant dependence on imported gas, mainly from the United States via pipelines, the country currently has a storage capacity of “four hours”.

During February 2021, Mexico faced a supply crisis due to a winter storm that paralyzed its main supplier, the Texas oil industry. The consequence was electricity service cuts to 4.7 million customers in multiple entities of the country due to the extra cost of natural gas purchased by the state company CFE for the production of electricity.

Alipi said that the February 2021 crisis made Cenagas resume storage projects, and "above all" ask if there was a market in order to avoid spending on infrastructure and that it is not used or nobody wants to work on it. The industry showed its interest during public consultations this year and last, which pushed Cenagas to launch the tender.

"They have expressed interest, especially after the events of February."

The Cenagas 2021 public consultation revealed that there are six companies interested in offering the storage service of 2,733 million cubic feet and 38 interested in having the strategic, operational and commercial storage service in depleted deposits, saline caverns and tanks.

Sempra Infraestructura previously told Bloomberg Línea that it was studying the possibility of investing in underground storage in Mexico.

Due to the location of the field in Veracruz, the potential gas supplier would be the state company Petróleos Mexicanos, known as Pemex.

When asked about the interest of the subsidiary CFEnergía in storage, Alipi Mena said that any company can participate in the tender that will have an "open seasons" scheme, that is, the allocation of storage capacity through auctions.

"Yes, they have expressed their interest in storing gas, I think that even they have been looking for storage," he said.

Cenagas prepares more strategic storage

Alipi Mena also revealed that he is preparing the tender for more storage with the Brasil field, located in the border state of Tamaulipas, by December of this year.

The potential of the Brasil field is "very large" with 495,000 million cubic feet, but the one studied and feasible, according to Cenagas, is reduced to 31,000 million, and represents an inventory for eight days of demand that requires an investment of US$600 million.

"Eight days. Well managed, even a little bit more,” she added.

Cenagas is also contemplating bidding for the depleted Acuyo and Saramanko fields, but it will take the Center a year and a half to present the bidding rules due to the lack of information on technical feasibility, since the existing data is for extraction, not gas injection.

“The main thing about this is to maintain sovereignty. For us from Cenagas, sovereignty means being independent, not depending on anyone and these systems give us that independence”, he concluded.

https://www.bloomberglinea.com/latinoamerica/mexico/exclusiva-mexico-licitara-primer-campo-para-almacenamiento-estrategico-de-gas-natural/