GASSED UP

Mexico 2013 | ENERGY | VIP INTERVIEW

TBY talks to Ángel Larraga Palacios, Country Manager Mexico of Gas Natural Fenosa, on the natural gas sector in Mexico and the effect of national pipeline expansion.

What role does Gas Natural play in the wider Gas Natural Fenosa Group?

Gas Natural Fenosa Group 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.

In your opinion, what is Mexico potential to become a larger energy player?

Mexico has a big opportunity within the natural gas energy segment. Canada, the US, and Mexico form the region with the best natural gas prices in the world. In this regard, Mexico is ranked fourth in terms of shale gas reserves worldwide, despite the country having not started to exploit them. In addition, Mexico also has gas associated with crude oil and dry gas. I believe the country faces an important challenge in starting to exploit its shale gas reserves, for it would make Mexico a self-sufficient country in the energy sphere, and even allow it to become a key exporter. The US is setting the best example for the country, for it's clearly gearing up to become a key player in the sector, producing shale gas locally and also exporting it to other countries. México's potential is enormous, and it is time for the country to turn it into a reality.

“Mexico has a big opportunity within the natural gas energy segment."

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

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. In this regard, Gas Natural does not have active participation in the exploration and production of shale gas, for our partner Repsol is in charge of such activities. In Mexico we focus on the distribution and commercialization of natural gas.

What would you say needs to be done in terms of the operational framework to enable effective leveraging of that shale gas potential?

Oil production companies deal with both exploration and production (E&P) activities when it comes to gas reserves, and our interest in developing shale gas comes from the opportunity to offer competitive prices to our customers, which would enable Gas Natural Fenosa to further strengthen its position in the market. Our company can provide its own logistics, distribution, and commercialization infrastructure in order to contribute to the development of the gas industry in the country. However, for that to happen measures need to be taken at a higher level, as well as at the production level. The case of Texas and the US is the best example for Mexico, because the development of the production areas of shale gas has enabled the development of the distribution and commercialization areas.

Mexico's pipeline network is being extended at the moment. How do you hope Gas Natural's operations will be affected once the pipelines are completed?

The government of Mexico has an infrastructure development plan as part of its wider project of exploiting the shale gas industry. The main aim of these infrastructure activities is to strengthen pipeline links with the US in order to import gas, and take the supply points to those areas that lack such infrastructure. Gas Natural Fenosa is following such developments, because reaching new areas that previously lacked infrastructure means new distribution markets. We aim to take part in the tendering processes that have already started to supply gas to these areas. In addition, Gas Natural Fenosa aims to further develop the areas where the company is already active, including the North, Center, and Federal Districts, where there is enough room to expand our activity and further grow our presence in the market. For example, in Monterrey, in the north of Mexico, gas penetration reaches about 80%, whereas in the Federal District the figure is only 20%. Gas Natural Fenosa will increase its level of investment in Mexico in the coming years in order to gain more market share in some of the areas we are already operating in, and, of course, try to expand into new areas.

What are your expansion plans?

Gas Natural Fenosa's expansion plans for the next six years focus on increasing activity in the Federal District and the Bajíos region, which means increasing our investment activity two fold, especially regarding infrastructure. We plan to construct 11,000 kilometers of a new distribution network. At the moment we have more than 16,000 kilometers.

How does the company plan to grow its activities within the electricity generation sector in Mexico?

Gas Natural Fenosa currently has four combined-cycle generation plants in Mexico with an electricity generation capacity of 2,000 MW. The company's main target in this segment of our activity in Mexico is to continue taking part in tendering processes to construct new plants in the country that the Federal Electricity Commission (CFE) could make available in the future. At the moment, we are very content with our participation in the sector, and we believe that we can further increase our stake in the industry in the near future. That will enable Gas Natural Fenosa to be selective when deciding the projects it takes part in. I have to add that Gas Natural Fenosa only applies for tendering processes that envisage the winning company being an independent producer rather than just a building firm to construct the plant.

What is your general outlook for the natural gas sector in Mexico for the future?

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.

© The Business Year - November 2012