Carlos A. Arriola Jimenez

Carlos A. Arriola Jimenez

Director General, Integrated Gas Services of Mexico (IGASAMEX)
Ángel Larraga Palacios

Ángel Larraga Palacios

Country Manager Mexico, Gas Natural Fenosa

What is your company's role in the sector?

CARLOS A. ARRIOLA JIMENEZ IGASAMEX is a leading developer of natural gas distribution systems serving the industrial sector in Mexico. Since its inception in 1996, IGASAMEX has developed 30 natural gas systems spread across 12 states. Our highly professional team has deep expertise in all steps of the natural gas transportation value chain including engineering, right of way acquisition, permitting (federal, state, and municipal), construction, operation, and maintenance. Our growth strategy is guided by a strong moral compass and is based on strict adherence to our safety, integrity, and partnership values and on a long-term view of our business.

ÁNGEL LARRAGA PALACIOS Gas Natural Fenosa has three active business lines in the country: gas distribution, a segment in which we are the leading company with some 1.3 million clients of the overall 2 million; electricity generation by combined-cycle plants that can generate up to 2,000 MW—we currently have four generation plants; and wind energy, an area that is quite new for the company and in which we are developing a wind farm that will generate and supply 234 MW.

What are the steps that should be taken in order to realize Mexico's potential in the gas industry?

CAJ Our current regulatory framework is the main hurdle for the development of the very abundant unconventional dry gas reserves. PEMEX, the only entity constitutionally allowed to exploit hydrocarbons, must allocate scarce resources across multiple projects and has prioritized oil production, which is considerably more profitable than dry gas production under current market conditions. Unless regulatory changes are made to allow greater flexibility in the development of natural gas resources, it is likely that our reserves will remain underdeveloped and that the gas production deficit will continue to widen. However, increasing natural gas production in the short term is not necessarily the main priority when it comes to regulation. It seems far more important to develop a framework that allows Mexico to leverage its abundant resources to contribute to the long-term stability of the highly competitive North American natural gas market. That would allow Mexico to construct a sustainable comparative advantage in industries with high-energy intensity. All that said, the main issue for the Mexican gas sector right now is transport rather than production. The existing transportation capacity restrictions, both in terms of coverage and availability of existing infrastructure, are the main hurdle for the industry's short-term growth and relieving them should be the sector's top priority.

ALP The country needs to rethink its energy policies at the national level in order to give a boost to the gas industry. The newly elected government of Mexico has to decide whether to allow a greater participation of the private sector in the industry or, on the other hand, further develop the gas industry through PEMEX.

What are your expectations for the short term?

CAJ Our 2013 outlook is very robust; we expect to sustain if not accelerate our current growth trajectory. However, our business is very susceptible to macroeconomic trends, particularly the overall growth of the economy and regional natural gas price expectations. Even though we expect the Mexican economy to continue to gain positive momentum, we will keep an eye on Europe and the US, where the most meaningful short-term risks reside.

ALP In order to further develop, the natural gas industry in Mexico needs to start shale gas exploration activities, further invest in infrastructure, and also improve and strengthen the regulatory framework. This would help us and the other players in the sector better understand the parameters in which we can operate. In this regard, the government has held talks with all the major players in the sector. However, no measures have been taken so far and we expect that within the newly elected government's term to see the parameters within which we can operate. At the same time, I believe that the sector has huge potential growth. The year 2013 will be very important for Gas Natural Fenosa as we have key projects coming up, especially in Mexico City, where we are constructing hundreds of kilometers of pipeline.

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