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Mexico 2019 | ENERGY | FOCUS: ENERGY STORAGE

Today, natural gas supplies more than 60% of Mexico's of energy needs, but due to years of falling domestic production, the country has become increasingly reliant on US gas imports. Following the boom in US shale gas production, a maze of new pipelines have proliferated between the neighboring nations, primarily to transport gas from the highly-productive Permian Basin in West Texas to distribution centers throughout Mexico.

The result is Mexico gets nearly 65% of its natural gas from the US. Yet as pipelines continue to be built to meet increasing demand in Mexico, state officials are facing challenges in delivering gas to more isolated regions. In response, the Comisión Reguladora de Energía, or Energy Regulatory Commission, (CRE) is seeking to develop energy storage facilities to improve distribution networks and ensure reliable gas supplies throughout the country.

Commission officials believe a robust storage network would help lower notoriously high energy prices for consumers while extending supply periods in isolated areas. By proposing new regulatory framework to encourage energy storage development and supporting ongoing infrastructure projects to transport natural gas to new areas, the Commission has stated Mexico is on a trajectory to more than double its current storage capacity in the coming years.

While underground gas storage has yet to be developed in Mexico, where the Altamira and Manzanillo liquefied natural gas import terminals serve as the key storage facilities, the Ministry of Energy recently published its Natural Gas Public Policy, in which CENAGAS, the National Control Center for Natural Gas, will be tasked with creating a five-day strategic inventory of gas storage equivalent to 45 BCF by 2026. In the coming years, CENEGAS, which oversees development in the Mexican gas sector, will develop storage infrastructure through public bids. New facilities will play a key role in supporting a growing pipeline network that will enable a new era of energy security in previously underdeveloped energy markets in Mexico. CENAGAs is currently administering the construction of the Compression Station in Cempoala, Veracruz, which will increase gas supplies for the entire southeast region, which includes the underserved Yucatán Peninsula.

A new connection from a marine gas pipeline between South Texas and Tuxpan will facilitate the flow of 500 million cubic feet per day of natural gas into the National Integrated Natural Gas Transportation and Storage System (SISTRANGAS) that will supply gas-fired power plants in the region. SISTRANGAS is a vast network of national pipeline running throughout Mexico, which includes the Tamaulipas pipeline, the Zacatecas pipeline, the Bajio pipeline, and Ramones I, II and South pipelines.
All together, SISTRANGAS has an operating capacity of some 8 Bcf/d, which officials expect to increase over the coming years to 12 Bcf/d after a number of delayed pipelines come online. The new flow of gas in the southeast of Mexico is expected to meet existing demand from industries and business, as well as satisfy power needs in southern Veracruz, Tabasco, Campeche, and the Yucatán.

The development of Mexico's gas infrastructure comes at a critical time, as the installed capacity of gas-fired power plants rose from less than 20GW in 2005 to 25GW in about 10 years. In addition, the national energy ministry estimates nearly 25 additional GW of gas-fired power generation facilities will be brought online through 2029.
As pipeline imports are relatively constant in the amount of energy they transport per day and gas demand fluctuates both daily and seasonally, the development of natural gas storage facilities is be essential in building an efficient and sustainable energy distribution system. Mexican officials are currently studying proposals with options ranging from smaller, above ground facilities, such as gas tanks, to underground facilities. Generally, three types of underground facilities are used for gas storage purposes, including depleted natural gas or oil fields, salt caverns and aquifers.

Yet the speed of such infrastructure developments will largely depend on political dynamics as Mexico recently underwent a change in administration in December 2018 with the inauguration of President Andrés Manuel López Obrador, or AMLO for short. Investors are waiting to see how AMLO handles ongoing energy projects, but many observers believe the sweeping energy reforms that opened Mexican energy markets to foreign investment and competition will likely undergo new scrutiny with the new administration.