Mexico awards gas distribution contracts

Kicking off one of the largest privatization projects of its kind in the world, Mexico's Comisión Reguladora de Energ!a (CRE) announced on Aug. 4 the results of bidding for the rights to distribute natural gas in Mexico City and the adjacent Valle Cuautitl n-Texcoco region.

Aug. 10, 1998

4 min read

The Mexico City gas distribution system concession was won by Proyecto de Energ!a de M?xico (PEM), a consortium of Lone Star Gas International, Dallas, and Grupo Diavaz SA de CV and Controladora Comercial e Industrial, both of Mexico. The consortium Mexigas, comprising Gaz de France and Mexico's Bufete Industrial, was awarded the Valle Cuautitl n-Texcoco system concession (OGJ, July 6, 1998, p. 40).

Formerly, all natural gas distribution in Mexico was controlled by Petroleos Mexicanos, the state-run petroleum company. But, in November 1995, the federal Congress approved a law to allow the privatization of gas distribution.

Pemex remains in control of natural gas production, the majority of which comes from the developing Burgos basin fields in northern Mexico, along the border with Texas.

Since the privatization process began, natural gas networks have been auctioned off to private companies in seven areas: Mexicali, Chihuahua, Hermosillo/Guaymas, Toluca, Tampico/ Ciudad Madero, Reynosa/Matamoros, and Monterrey. Bidding for the El Baj!o region, a growing industrial area northwest of Mexico City, is to begin with the release of bid packets on Aug. 14.

Future areas to contract out natural gas distribution will include Tijuana, Cuernavaca, Puebla, Guadalajara, and the La Laguna region around the cities of Gómez Palacios and Torreón.

The contracts

The Mexico City area distribution permits allow Mexigas and PEM to operate the distribution systems for 30 years, with the possibility to renew for 15 years more, at the discretion of CRE. The two groups will have exclusive distribution rights for only 5 years, however, after which other private companies may enter the market.

The groups each have committed to invest at least $500 million over the next 10 years to expand the two gas distribution systems. The current combined pipeline network of both systems is 513 km long but will be expanded to more than 6,000 km within 5 years.

Mexigas and PEM submitted multiple bids for both systems, as did Gas Natural de M?xico-Repsol. Mexigas presented the best offers, in terms of coverage and price, for both areas but, due to bidding rules, was not allowed to take over both systems and opted for Valle Cuautitl n-Texcoco.

Asked why Mexigas did not choose the Mexico City system, Gaz de France executive Pierre Cochet said his consortium saw greater growth potential in the heavily industrial region of Valle Cuautitl n-Texcoco, although he added, "We would have been happy with either one."

Both regions are now served by a Pemex natural gas distribution system capable of handling 190 MMcfd of gas. Natural gas arrives at the Mexico City area via three pipelines: a 36-in. line from Santa Ana, Hidalgo; a 30-in. line from Ciudad Pemex, Tabasco; and an 18-in. line from Poza Rica, Veracruz. All three pipelines meet at the Venta de Carpio station northeast of Mexico City, where the gas is distributed through two independent systems serving 135,000 residential, commercial, and industrial clients.

Within 5 years, PEM is required to supply natural gas to 439,253 clients in Mexico City at a price of $2.4233/gigacal, while Mexigas must supply 374,698 customers in Valle Cuautitl n-Texcoco at $1.088/gigacal. Both groups said they hoped to double the number of clients from their committed levels within 10 years.

During the first years of investment, the groups are expected to aim at hooking up more industrial users, while commercial and individual users will be targeted later, company representatives said.

Mexico's gas use

"We think the prospects in Mexico are tremendous," said Lone Star official William White. "Mexico City is one of the greatest potential areas left for distribution, and it's very similar to work we're doing now in Santiago (Chile)."

Mexico City and Valle Cuautitl n-Texcoco-together one of the world's largest urban areas-use natural gas on a small scale.

According to CRE, natural gas consumption in Mexico City is now 38.5 MMcfd, but the area has the potential to increase gas consumption to 439 MMcfd in the near term. Valle Cuautitl n-Texcoco currently uses about 71.7 MMcfd, and CRE estimates it could consume as much as 282 MMcfd in the coming years.