Mexico's national power utility plans natural gas sales

Reuters News
Posted: May 20, 2014 6:26 PM

By David Alire Garcia and Adriana Barrera

MEXICO CITY (Reuters) - Mexico's state-owned power utility plans to start selling natural gas to the private sector for the first time as it builds new pipelines, the company's top executive said.

Industrial consumers would be the target market for the sales, Enrique Ochoa, chief executive officer of the Federal Electricity Commission, or CFE, told Reuters late on Monday.

Before energy reform legislation passed in December, only state-run oil company Pemex was allowed by law to produce and market natural gas.

"For us, this is a new opportunity that the reform allows," Ochoa said.

The legislation also ended the decades-long monopoly on power generation held by the CFE, while calling for private contracts to improve transmission and distribution infrastructure.

The reform is expected to spur investment across the sector, especially in natural gas production, which is increasingly the country's low-cost option for power. Congress could approve the rules as soon as June.

The government has said the reform will lower electricity rates, particularly for industrial users, but Ochoa declined to say how quickly that could occur.

The CFE's near-term priority, Ochoa said, is a major expansion of the country's natural gas pipelines. This should boost capacity to allow for more cheap imports from the United States, where output is booming.

Ochoa said five new pipeline projects due to be put out to contract later this year are designed to provide better interconnectivity.

The five pipelines in northern Mexico would move almost 5.8 billion cubic feet of gas per day in a planned investment of $2.25 billion.

"This will create a true national system of natural gas pipelines to transport gas, with more backup for places where there isn't enough," Ochoa said.

The specifications of the first two pipeline projects into Durango and Chihuahua states should be public by July and open to bids by private companies in September, he added.

All five pipelines should be finished between 2015 and 2017, Ochoa said.

The CFE is also constructing five new gas-powered combined-cycle power plants that should be complete by 2017, and Ochoa added that another two would be announced soon.

Mexico now has installed power capacity of about 54 gigawatts, nearly half of which is from natural gas, while about a fifth comes from costlier, dirtier fuel oil.

Ochoa said the CFE would like to keep moving away from fuel oil, but the pace of transition would depend on the success of pipeline expansion and new domestic gas production.

"Right now, the priority is natural gas because the price makes sense and the opportunities are there," he said.

Ochoa said the CFE also wanted to produce more power from renewable sources, in line with a government goal of generating 35 percent of Mexico's electricity needs from non-fossil fuel sources by 2024.

Wind, solar, geothermal and especially hydroelectric sources will grow fastest, Ochoa said, but additional nuclear power beyond the country's single plant in eastern Veracruz state was unlikely for the foreseeable future.

(Additional reporting by Dave Graham; Editing by Lisa Von Ahn)