Official: Electric power boosts Mexican gas demand

Mexico's natural gas demand is projected to grow 10%/year for the next 10 years propelled in large part by soaring demand for gas-fired electric generation, but supply is expected to grow only about 7%/year, government energy officials said in Houston. To achieve the 7% growth rate will require a boost from the current growth of about 4%/year and enormous capital investment in both gas and power, said Dionisio Perez, head of the investment promotion unit for the Secretariat of Energy.


Mexico's natural gas demand is projected to grow 10%/year for the next 10 years propelled in large part by soaring demand for gas-fired electric generation, but supply is expected to grow only about 7%/year, government energy officials said in Houston.

To achieve the 7% growth rate will require a boost from the current growth of about 4%/year and enormous capital investment in both gas and power, said Dionisio Perez, head of the investment promotion unit for the Secretariat of Energy. Mexico currently has total generating capacity of about 35,800 Mw and about 34,000 km of electrical transmission lines.

He estimated nearly $10.5 billion/year will be need to be invested in energy projects, including about $5 billion/year on electricity projects to keep up with forecasted demand of 6%/year growth.

"The government does not have the capacity to do this," he said at the Mexican Energy 2000 conference.

This year the Comision Reguladora de Energia has awarded 12,007 Mw of worth of new generating capacity, but the program has not worked as well as expected, Perez said. Excluding independent power producers with power purchase agreements with Comision Federal de Electricidad, only about 400 Mw are actually operating.

Market uncertainty
Uncertainty over a proposed electricity bill and a pending change in Mexico's administration has delayed some projects, Perez suggested. Load aggregation may also a problem for some generators, he said. Some participants at the conference said electric rates are set too low to spurt investment in power plants.

Perez said there is potential for about 7,000-9,000 Mw worth of industrial cogeneration, plus another 7,000 Mw worth of cogeneration that will be needed by Petroleos Mexicanos (Pemex). In talks with the transition team for President-elect Vicente Fox, Perez said, "we have pointed out there is a huge potential for cogen with Pemex." He said it is likely the government oil company will outsource development of some of the projects.

With respect to natural gas, Pemex is investing about $437 million (US) in compression capacity and operating funds in the next 5 years, said Alejandro Brena, director of natural gas of the Comision Reguladora de Energia.

Permits to build 38,800 km of natural gas pipeline with a value of $2.2 billion have been issued, he said, as private investors prepare to build the infrastructure to serve projected growth of 9%/year. While a number of reforms to the gas market are underway, including a separation of the marketing and transmission functions at Pemex, Brena called attention to seven regulatory issues that will need further attention to create a functional Mexican market.

The most significant is developing a gas index that reflects the Mexican market, he said. Presently, sales are indexed to the Houston Ship Channel prices. Even though seasonal changes in the United States have little or no impact in Mexico, the US price sets Mexican gas prices.

Unless this is corrected, it could lead to a "reverse in demand for gas" in Mexico, Brena warned. In addition, at current demand levels, he said, the need for large storage facilities will soon be necessary to help stabilize prices and allow better use of the transportation system.

"This infrastructure is essential if Mexico will adequately integrate into a true North American gas market," Brena said.

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