Mexico City — Mexico will tender its first strategic natural gas storage project later this year, with the aim of strengthening the country’s energy security and reducing its exposure to climatic and geopolitical risks, Abraham David Alipi Mena, director general of the Natural Gas Control Center (Cenagas), said in an exclusive interview with Bloomberg Línea.
He added that by the end of July of this year the tender for the depleted Jaf field, located in Veracruz, will be launched, and the result will be published three to four months later.
“We want to get it out as soon as possible, by the end of next month,” Alipi said during the conversation in his office in Mexico City.
The depleted Jaf field has a storage capacity of 17 billion cubic feet, equivalent to an inventory of four days of demand.
The investment required for the project will be between $200-$250 million, and the recovery of the investment will be achieved through a storage fee that will be divided among the 35 users of the Integrated Natural Gas Transportation and Storage System, the country’s network of pipelines known as Sistrangas.
Alipi ruled out that the cost of the project will have an impact on inflation because it will be less than 1% of the natural gas transportation tariff, besides being an obligation of the users.
On its entry into operation, he said that a part of the storage at Jaf may start this year, but the total 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 next six years,” he said.
Jaf is located 40km southwest of Veracruz port. It was discovered in 2003 by state-owned oil company Pemex. which produced 12,148 million cubic feet of gas until December 2014. In 2018, Cenagas presented the bidding conditions for the project, but the government of President Andrés Manuel López Obrador put the project on hold, after criticizing the opening of the oil sector to private investment with the energy reform of former president of Enrique Peña Nieto in late 2013.
Mexico is a net importer of natural gas, which generates 60% of its electricity with the fuel. 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 power outages to 4.7 million customers in multiple entities of the country due to the excess cost of natural gas purchased by the state-owned company CFE for the generation of electricity.
Alipi said that the crisis of February 2021 made Cenagas resume storage projects, and “above all” ask if there was a market in order to avoid disbursement in infrastructure, and if there was interest in using it. The industry showed interest during public consultations this year and last year, which pushed Cenagas to launch the tender, he said.
“Yes, they [companies] have shown interest, especially after the events of February.”
Cenagas’ 2021 public consultation revealed that there are six companies interested in offering the 2.73-billion-cubic-feet storage service and 38 interested in using the strategic, operational and commercial storage service in depleted reservoirs, salt caverns and tanks.
The company Sempra Infraestructura had told Bloomberg Línea that it was studying the possibility of investing in underground gas storage in Mexico.
Because of the field’s location in Veracruz, the potential supplier of the gas would be state-owned 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 interest in storing gas, I think they have even been looking for storage,” he said.
Cenagas preparing more strategic storage
Alipi Mena also revealed that Cenagas is preparing the tender for more storage with the Brasil field, located in the northern border state of Tamaulipas, by December of this year.
The potential of the Brasil field is “very large” with 495 billion cubic feet, but studied and feasible, according to Cenagas, is 31 billion, and represents an inventory for eight days of demand that requires an investment of $600 million.
“Eight days. Well managed, even a little bit more,” he added.
Cenagas is also contemplating the bidding of the depleted Acuyo and Saramanko fields, but it will take the gas control center a year and a half to present the bidding bases due to the lack of information on technical feasibility, since the existing data are for extraction, not gas injection.
“The main thing about this is to maintain sovereignty. For us at Cenagas, sovereignty means being independent, not depending on anyone, and these systems give us that independence,” he said.