Here's a very interesting article from today's NY Times that doesn't mention Penn Octane, but certainly discusses business that they're in, or trying to get into. Anybody out there have any thoughts on the subject?
February 9, 1998
Gas Companies Jockeying for Prize of
Mexico City
MEXICO CITY -- It's 7 a.m. and Jose Francisco Ruiz shoulders a
man-sized tank of liquefied propane up steep stairs to a
downtown rooftop.
He wails "Gaaaas," summoning the building's residents. Each pays him
the equivalent of $10 to fill a cylinder that holds enough gas to provide
heating and cooking fuel for a family of five for about 20 days. This
ritual is woven into the fabric of life in the Mexican capital, where Ruiz
and thousands of other "gas jockeys" distribute about 200,000 cylinders
every day to nearly 20 million residents.
But the cries of the propane dealers could soon fade into history as
residents are given the opportunity to convert to natural gas, a cheaper,
safer, cleaner-burning fuel. Dozens of international energy corporations
are competing for millions of dollars in contracts to lay hundreds of
miles of pipelines and establish gas connections to thousands of homes
and businesses.
"The Mexico City projects represent one of the last great natural gas
prizes in the world," said Robert Navarro, a director in Latin America
for Houston Industries Energy Inc., a Houston Industries unit that won a
similar contract in the gulf coast city of Tampico and is now a major
contender here.
The Mexico City gas concessions, which together are 10 times the size
of any such concession granted in Mexico so far, are likely to attract
bids from most of the world's major natural gas companies, Navarro
said. Other analysts say the project's vast size may intimidate smaller
companies, and some potential investors have voiced concerns about
whether the bidding will be fair.
The bidding process began late last year, and the contracts are to be
awarded in early August.
Although Mexico has vast petroleum wealth, including the world's
14th-largest natural gas reserves, until recently gas was viewed by
energy policy makers as a nearly useless byproduct of oil production.
But that began to change in November 1995, when President Ernesto
Zedillo deregulated Mexico's natural gas transport and distribution
sectors and opened them to private investment.
Private investment is needed to finance further development of the
petroleum industry, which is controlled by the state-owned monopoly
Petroleos Mexicanos, or Pemex, the government says. Under the
deregulation policy, Pemex continues to enjoy its monopoly over gas
production.
Since 1995, the Energy Regulation Commission has awarded
concessions to build gas distribution networks in five Mexican
metropolitan areas: Mexicali, Chihuahua, Toluca, Tampico and
Hermosillo. These concessions have helped increase the funds available
to Pemex for exploration and other development activities in 1998 by
51 percent, the energy minister, Luis Tellez Kuenzler, said recently.
Since the deregulation, companies have adopted various strategies to
position themselves in the Mexican market. Some have helped build the
new gas networks in the five smaller cities in hopes that might help them
win an advantage in the Mexico City bidding.
Mexico City has been divided into two zones, sprawling across the
capital and more than a dozen towns in surrounding Mexico state. The
two pipeline projects, which will together require about $1 billion in
investment, are to extend gas service to about 500,000 customers and
are expected to result in revenue of nearly $200 million over five years
for winning bidders, according to industry estimates.
Once the distribution system is complete, natural gas will cost only
about 40 percent as much as propane, which, even with subsidies, costs
the average household the equivalent of $10 to $15 monthly. A $4 to
$6 monthly saving means a lot in a city where the average daily wage is
about $3.
Environmental benefits are also expected to be substantial. Thanks to
two of its components, butane and butene, both harmful to the
environment, the use of propane has helped make Mexico City one of
the world's most polluted cities. Natural gas is much cleaner, releasing
far fewer contaminants into the atmosphere when it is burned.
The government contends the switch to natural gas will reduce
emissions of sulfur by 99 percent and carbon monoxide 40 percent to
50 percent. While compressed natural gas remains more expensive than
gasoline, city authorities recently awarded a contract to a Canadian
company to build the capital's first natural gas fueling stations for public
buses.
The magnitude of the two projects and the huge investments required
will prevent some companies from participating, said Errol Vanderhorst,
a project manager with KN Energy Inc., a Lakewood, Colo., company
that won the bidding to build gas lines in Hermosillo, a city south of
Arizona.
Mexico City's gas distribution concessions offer the government a new
opportunity to convince international energy companies that their
investments are welcome here after a damaging episode in 1996, when
the government reneged on pledges to sell controlling interests in
Pemex's petrochemical complexes.
Bidding for at least one of the five previous gas concessions, in
Tampico, has left some investors disgruntled. Two companies
eliminated from the September Tampico auction, the Royal Dutch/Shell
Group's Shell Oil Co. unit and Gaz de France, later complained that the
criteria used by the Energy Regulation Commission in awarding the
concession were confusing and inconsistent.
Hector Olea, the commission's president, pledged that the Mexico City
bidding would be fair.
Pipeline construction, expected to begin in early 1999, will rip up city
streets one by one, Olea said. Mexico City has chronic traffic
congestion, and residents can expect more of the same as pipelines are
laid.
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