Market liberalisation: restructuring of gas transportation infrastructure rules - International Law Office

Changes to gas supply market
Comment

Mexico's busy gas transmission networks are being restructured through the reallocation of capacity and provision of natural gas transportation services in a joint initiative by the Mexican Energy Regulatory Commission - the regulator for natural gas downstream activities - and Pemex-Gas y Petroquímica Básica (PGPB). PGPB has a legal monopoly on the supply of domestically produced natural gas, and owns the largest gas transportation network in Mexico.

Changes to gas supply market

For many years the regulator has been trying to liberalise the gas supply market further, in an economy where all users - except independent power producers that sell to the government power utility Comisión Federal de Electricidad - receive natural gas supply from PGPB on a bundled basis, with transportation to their points of receipt and consumption. In July 2010 the regulator issued Resolution RES/204/2010 updating existing criteria and establishing the basis under which PGPB will finally undertake an open season for allocation of capacity among users in the National Gas Pipelines System.

Transitional period
In 1999, when PGPB was issued with its Gas Transportation Permit as part of the new regulatory framework for natural gas, the regulator called for a transitional period after which an open season would be held to allocate the existing capacity in the National Gas Pipelines System.

This transitional period was connected with the approval of new rules for the sale of domestically produced gas and associated schedules. While the terms and conditions of the new rules have been approved, as a result of various political and market issues certain terms related to pricing and fees remain unapproved. This has caused the transitional period to be extended for an unexpectedly long time.

However, the transition is scheduled to end in the coming months when PGPB undertakes the second stage of its open season (the first stage occurred when the independent power production plants secured capacity). Users will be expected - and required - to exercise their so-called 'vested rights on capacity'.

Vested capacity rights
According to the regulator's resolution, the vested rights are calculated on the basis of the gas supply profile of each industrial user during 2008 and 2009, plus a 36% standard deviation. Current users will be entitled to reserve capacity on the National Gas Pipelines System, based on such levels. Each user's entitled capacity is unaffected by whether it has been an indirect user of the system through a bundled service offered by PGPB's gas marketing arm.

Even if the users cease use of the bundle service from PGPB and resort to marketers or to the purchase of gas from PGPB directly at the processing plant, with transportation service contracted separately, the vested capacity rights will define the level of service available for the relevant users. PGPB is notifying specific users of both the transportation and the marketing arms of PGPB of their relevant vested rights and the period in which they can exercise them on an individual basis, as per the terms of the resolution.

The National Gas Pipelines System has capacity restrictions at certain points. It is yet to be seen how industrial users will respond regarding the exercise of their vested capacity rights. If all parties exercise their rights, the PGPB system will reach its maximum operating capacity at certain points, in which case alternative expansion projects will be necessary. If not all vested capacity rights are exercised, PGPB may place additional capacity among interested parties in the market.

Comment

This development is viewed by market analysts as yet another regulatory step towards market liberalisation. It should strengthen the positions of gas marketing players and set up clearer affiliate marketing groups within PGPB's existing transportation and marketing arms.

For further information on this topic please contact Rogelio López-Velarde or Ruben Almaraz at López Velarde, Heftye y Soria by telephone (+52 55 3685 3334), fax (+52 55 3685 3399) or email (rlopezv@lvhs.com.mx or ralmaraz@lvhs.com.mx).