Page 5 - LatAmOil Week 07 2021

LatAmOil COMMENTARY LatAmOil

They did not specify how much LNG the com- residential supplies a higher priority that com-
pany hoped to buy, but they did report that the mercial and industrial deliveries.
winner of the bidding contest would be required The loss of gas and power supplies has not
to deliver the fuel before the end of the week. just been a nuisance. It has also caused the coun-
CFE divulged a few more details of its plan try to take a financial hit. According to Index,
on February 17, saying that it had tendered con- Mexico’s national council of maquiladora and
tracts for the purchase of four LNG cargoes since export manufacturing industries, the indus-
February 12. It also said it had taken delivery of trial sector of northern Mexico suffered $2.7bn
the equivalent of 450 mmcf (12.74 mcm) of gas worth of losses over two days because of the
at the Altamira and Manzanillo LNG terminals interruptions in electricity supplies.
on February 16.
In any case, it bears mentioning that CFE’s Policy implications
push to acquire LNG in such a short amount Beyond the operational and financial disrup-
of time is unusual. This type of fuel is typically tions, the gas supply cuts may also have an
transported by long-haul tankers traversing the impact on policy going forward.
open seas at speeds of less than 20 knots, so it is On the one hand, they are likely to reinforce
not always easy to acquire at short notice. But the Mexican President Andres Manuel Lopez Obra-
atypical circumstances are an indication of the dor’s belief that dependence on trade and for-
urgency of the matter. eign partners has the potential to damage the
country’s economy and security. The president
Spreading shortages certainly seemed to be leaning in that direction
And urgency has hardly been in short supply on February 16, when he said: “The bet of pre-
this week. The outages reported by CFE on Feb- vious administrations was to buy the gas abroad
ruary 15 soon spread beyond northern Mexico. and Mexico stopped producing; there was cor-
As of February 17, they had spread to 29 Mexi- ruption involved in these decisions.”
can states and were affecting Mexico City, which That is, it may lead the president to push The gas supply
is nearly 1,000 km away from the border with harder for the country to achieve self-suffi-
Texas. This is hardly a surprise, given that 40% ciency in energy. He is likely to find at least some cuts may also
of the country’s electricity supplies come from support for this stance. Miguel Reyes, the direc-
combined-cycle thermal power plants (TPPs) tor-general of CFE, said earlier this week that the have an impact
that use gas as fuel. shortages and blackouts served to prove “why
At the same time, though, gas shortages have Mexico must seek autonomy.” on policy going
also been spreading. The cuts in pipeline sup- forward
plies have not just caused problems for CFE; Self-sufficiency and storage
they have also hit Cenagas, Mexico’s national gas Even so, the president and his allies will prob-
concern. Like CFE, Cenagas has set up its own ably find this goal difficult to achieve. Mexico
pipeline network with a capacity of 7 bcf (198.2 does not produce enough gas to cover domestic
mcm) per day to import fuel from the US, and as demand, so it depends on imports – and its eas-
a result it too has been running low. iest option has been to rely on imports from its
As a result, the gas company has had to ration neighbour to the north.
supplies. As of February 17, it had reduced the In theory, it could seek to mitigate this
total volume of gas delivered to its domestic dependence by diversifying suppliers. However,
customers via pipeline by about a third. It cut this approach has a number of drawbacks, not
deliveries to all customers by around 30% on least among them the fact that Mexico has very
average, though the actual extent of individual little capacity to store gas and cannot stock up
curtailments ranged between 16% and 99%, on fuel when prices are low or when it needs to
depending on the customer involved. prepare for winter.
The country’s last president, Enrique Peña
Impact on business Nieto, had hoped to remedy this situation by
These reductions have affected a number of calling for the construction of facilities capable
major industrial consumers, including plants of storing up to 45 bcf (1.274bn cubic metres)
owned by the Mexican automotive parts manu- of gas by 2026. However, the incumbent aban-
facturer Nemak, the automobile manufacturer doned that plan and replaced it with a less ambi-
Volkswagen (Germany) and the steel producer tious initiative calling for the use of salt caverns
Arcelor Mittal (India). The impact is not evenly in Veracruz State to store 3 bcf (84.96 mcm) of
distributed, however. According to Cenagas, gas and for the construction of a storage depot
some manufacturing facilities in northern at the Altamira LNG terminal to store another 3
Mexico – including Manufacturas Vitromex, bcf (84.96 mcm).
a maker of glass, and GCC Cemento, a manu- Now CFE appears to be taking the matter
facturer of cement – had seen delivery volumes into its own hands, to some extent. On February
drop by 99% as of February 17. 15, it released a statement indicating that it was
Residential consumers, meanwhile, have devoting more attention to the country’s lack of
shouldered less of the impact. Only 8.2% of storage capacity. “CFE will include storage in its
the country’s households are connected to gas commercial and operating strategy as a strate-
pipelines, and the distributor that serves Mex- gic short-term action to minimise the negative
ico’s northern regions, Gas Natural del Norte, impacts of abrupt price fluctuations and drastic
announced on February 16 that it would make variations in requested volumes,” it said. ™

Week 07 18•February•2021 www. NEWSBASE .com P5