Column: Understanding CFE’s Growing Role in the North American Natural Gas Market

Editor’s Observe: NGI’s Mexico Fuel Worth Index, a pioneer that tracks Mexico’s pure fuel market reform, presents the next column by Eduardo Prudhomme as a part of an everyday sequence on understanding this course of.

For some time now, CFE Internacional (CFEi), an organization based in 2016 in Delaware, has been among the many 15 largest pure fuel entrepreneurs in North America. In keeping with NGI’s newest rankings of the very best pure fuel entrepreneurs in North America, within the second quarter, this US subsidiary of Mexican state utilities Comisión Federal de Electricidad (CFE) ranked a formidable twelfth.The tenth With transactions averaging 3.8 billion cubic ft per day in the course of the interval.

CFEi imports fuel to Mexico. In the meantime, CFEnergia is the Mexican firm liable for advertising and marketing this bought pure fuel. It receives fuel primarily by way of transboundary pipelines, but in addition some LNG cargoes. The 2 CFE firms have been organized to work in coordination with one another. Though their fields of labor are completely different, to know their impression on the pure fuel market typically, one should overview the contracts they run collectively.

CFEi sells the acquired fuel by way of short-term and long-term contracts. A few of these contracts lengthen by way of 2034. Two contracts signed between 2016 and 2017 with WhiteWater Midstream LLC for a complete quantity of 450 million cubic ft/day with elevated commitments all through their tenure are actually underneath the highlight because of allegations of corruption. Trafigura, Apache Corp., ARM Power, and Santa Fe are different firms which have CFEi or have long-term contracts with a complete quantity of about 2 billion cubic ft/day.

When it comes to contracting for transportation companies, CFE subsidiaries handle the reserved capability in numerous fuel pipelines by way of greater than 70 contracts. About thirty contracts in america permit it to move the bought fuel to the border. As soon as the fuel is imported, CFEnergia nominates transportation, LNG storage and compression companies in about 40 contracts. Its counterparts are all non-public firms.

As a member of the CFE, CFEnergia manages contracts in Mexico which have most day by day quantities of greater than 17 Bcf/d – though a lot smaller systemic impact – and greater than 10 Bcf/d north of the border. CEnergía has the authority to make use of the capability it sees match. Its main function is to supply the most cost effective provide to CFE’s electrical energy crops. It additionally has pursuits in advertising and marketing pure fuel to 3rd events. This section is of paramount significance to the power markets.

The 2014 structural reform implies that the CFE should compete within the electrical energy market, underneath a cost-effective transmission system, with some limitations associated to grid stability. CFE formulates the proposals and the CENACE energy system operator transmits energy based mostly on the corporate providing the bottom variable value of technology. This premise permits the CFE to attempt to enhance its worth by decreasing the price of provide.

CFE is anchoring its pure fuel infrastructure and subsidiaries to enhance the worth of contracted capability, to provide flexibility to CFE’s electrical energy technology and to faucet into the fuel market. In precept, the thought doesn’t appear to contradict the rationality of markets. Nonetheless, the dominant position of the CFE within the fuel community can result in some elementary contradictions.

[Mexico Matters: Cross-border energy trade between the U.S. and Mexico reached $42 billion last year. Understand this burgeoning trade flow — the projects, politics and natural gas prices — with NGI’s Mexico Gas Price Index. Know more.]

Though the 2015-2019 five-year plan to develop the pure fuel pipeline has been the set off for a lot of Mexico’s trendy pure fuel transmission infrastructure, the CFE’s historical past as a serious consumer of privately developed initiatives is lengthy and fruitful. Programs equivalent to Mayakan, Gasoducto Morelos, Naranjos-Tamazunchale and Energía Occidente de México have routes and prolonged the previous Nationwide Pipeline System, or SNG, operated by Petróleos Mexicanos (Pemex) till the top of 2015. This technique expanded pipeline capability due to agreements The funding sponsored by the CFE which funded the development of strain stations in Soto La Marina, Altamira, Gloria a Deus and Bajo.

The record of strategic initiatives continued. The LNG crops in Manzanillo and Altamira, whose authentic function was to satisfy the fuel necessities of particular producing crops that didn’t have a assure of provide from Pemex, grew to become the infrastructure that allowed the system to be balanced at moments of biggest provide threat.

Desperate to convert liquid-fuel-burning energy crops into mixed cycle crops, CFE has begun shifting fuel to unprecedented areas, the place Pemex has made no tangible effort to create a pure fuel market. The Sasabe-Guaymas, Guaymas-El Oro, El Oro-Mazatlán and El Encino-Topolobampo programs have opened up potentialities for growth within the Mexican Pacific area, and right now these fuel pipelines can function a platform for logistics options with a world impression, equivalent to exporting LNG to Asia .

The standard armed forces additionally assisted within the growth of the offshore pipeline and the Wahalajara system.

Subsequently, for greater than twenty years, mission by mission, CFE has been constructing a fuel community configured in accordance with its necessities. It’s a system that doesn’t rely on native manufacturing. Lengthy-term contracts between conventional firms in Europe and personal carriers made this doable, together with the 2014 reform.

Within the nationwide pipeline community Sistrangas, CFEnergia has amassed extra capability yr by yr. In July 2020, the utmost day by day whole quantity was 1.9 billion cubic ft per day. As we speak that quantity is near 2.6 billion cubic ft/day. This place clearly contrasts with the federal government’s persistent grievance that CFE has been left with besieged capabilities because of earlier authorities selections.

The official rhetoric of Power Minister Sener who stipulated contracting for capability in Sestrangas to acquire fuel or transportation companies from the CFE is at odds with market realities.

CFEnergia’s weight in supplying fuel within the nation is bigger than that of some other advertising and marketing firm and exceeds the necessities of the electrical energy sector operated by the guardian firm. As such, CFEnergia delivers roughly 650 million cubic ft per day to prospects aside from CFE’s technology firms.

Different turbines, small entrepreneurs and ArcelorMittal, the nation’s largest industrial consumer, are included on this group. BP is about 185 million cubic ft per day, 56 million cubic ft per day from Macquarie and Shell’s 100 million cubic ft per day by way of spare capability at Sistrangas.

Being a subsidiary of CFE, and provided that this can be a state producer firm with a transparent revenue function, CFEnergia has each incentive to sue at excessive margins. On the similar time, it should cut back prices for its most popular buyer, a associated celebration, and the technology firms owned by its guardian firm. One doable manner out of this battle is to distinguish prospects, cost them at various charges, and train their market energy with respect to continuity of flows; A situation not conducive to competitors in Mexico and the competitiveness of North America.

On this sense, the twelfth place within the rating doesn’t appear very encouraging for the Mexican consumer, regardless of the overall nature of the CFE model.

Prud’homme has been pivotal within the growth of Cenagas, the nation’s pure fuel pipeline operator, an entity shaped in 2015 as a part of an power reform course of. He started his profession on the nationwide oil firm Petróleos Mexicanos (Pemex), labored for 14 years on the Power Regulatory Authority (CRE), rose to the place of Chief Economist, and from July 2015 till February served as Chief ISO Officer at Cenagas, the place he oversaw technical and business administration The built-in system of rising pure fuel (Sistrangas). Primarily based in Mexico Metropolis, he’s president of Gadex Power Consulting in Mexico.