Mexico to import NG ?
Mexico's Natural Gas Price Surge Fuels Call For Change
By ANTHONY HARRUP
Of DOW JONES NEWSWIRES
MEXICO CITY -- Mexico has taken steps of late to alleviate the effects soaring natural gas prices have on industry, but the private sector wants more than the government may be willing to offer.
State-owned oil and gas monopoly Petroleos Mexicanos, Pemex (E.PEM) this week agreed to waive penalties for large customers who reduce their commitments to buy gas this winter, and also granted customers a year within which to pay their bills. The measures follow a 25% discount granted in August on Pemex's reference price to local companies that hedged their winter gas supplies.
But Mexican industrialists say the measures don't get to the bottom of the problem, which is lack of competition, and are proposing alternatives for the private sector to get involved in the exploration and production of gas.
Pemex's reference price for natural gas, based on south Texas prices, and adjusted for transmission distances, rose by 99.5% to $4.45 per million British thermal units (MMBtu) in September from $2.23 per MMBtu in January.
"We were surprised by the unprecedented rise in the price, which was not foreseeable a year ago. Companies didn't have time to maneuver and we now have the consequences," said Luis Farias, president of the energy commission at the Confederation of Industrial Chambers, known as Concamin.
The steel sector has been the hardest hit of the energy-intensive industries.
Last week, Monterrey-based Hylsamex SA (E.HMX), a unit of conglomerate Alfa SA (E.GIA) announced it was suspending some production processes and reducing others, substituting with imports, until gas prices come down.
Altos Hornos de Mexico SA (IAM), or Ahmsa, the country's largest integrated steel maker, reacted to the higher price by increasing the use of coal and coke gas obtained in its processes, company spokesman Francisco Orduna said.
National manufacturing association Canacintra said this week that 250,000 jobs were in jeopardy at 500 glass, steel and ceramics companies owing to the rising gas prices, and complained that Pemex's prices are way above its production costs.
Mexico Sees Growing Natural Gas Imports
Concamin's Farias said that among the proposals the group has presented to the team of President-elect Vicente Fox, who takes office Dec. 1, is to allow the private sector to explore for and produce non-associated natural gas.
Citing a study by Massachusetts-based Cambridge Energy Research Associates, which was commissioned by the National Chemical Industry Association, Farias said Mexico would need around $70 billion in investment in the energy sector in the next six years.
"Of that, $20 billion would be just for natural gas," he added.
The plan to allow private participation in gas production would require a change in the constitution, a sticky point in Mexico where state ownership of the oil industry, decreed in 1938, is widely associated with concepts of national sovereignty.
More than two-thirds of the natural gas that Pemex produces is extracted with crude oil, and even non-associated gas fields produce liquids. Those liquids, Farias said, would have to be separated and handed over to Pemex.
Fox has said his government aims to broaden private investment in the energy sector, but has repeatedly said he will not privatize Pemex or the state electric utilities.
Pemex Sees Gas Imports Growing
With domestic natural gas demand seen growing at 9% a year, including 18% in the electricity sector, Pemex sees imports increasing in the coming years.
The head of Pemex's gas unit, Marcos Ramirez, said Mexico will have to import between 146 million and 900 million cubic feet a day of natural gas in the next five years, depending on the success of its Strategic Gas Program, which was unveiled in February.
The program, which got under way this year with planned investment of around $400 million, calls for overall investment of $12 billion. The plan is to increase Pemex's natural gas output to more than 8 Bcf/d in 2008 from around 4.8 Bcf/d at present.
"We are thinking that we will need investment of around $5 billion a year to develop natural gas fields," Deputy Energy Minister Mauricio Toussaint said at a press conference Tuesday.
Houston-based energy consultant George Baker said opening gas exploration to private concerns would increase the possibilities for gas output.
"Pemex's gas plan carries Pemex's cost structure. That is not to say Pemex's cost structure is too high, but it leaves in the ground gas that could be produced by small- and medium-sized independents with lower cost structures than a major oil company," Baker said.
In Texas, small and medium-sized independents produce over 50% of the gas, so theoretically half of Mexico's new output could be without any more investment by Pemex, Baker added. |
