EconomyFinancialA new regulatory change gives more power to the...

A new regulatory change gives more power to the CFE in the natural gas market

A new regulatory change approved by the energy regulatory commission (CRE) could make state-owned CFE a predominant player in the natural gas trading market.

Last Friday, the market regulator modified a resolution that dates back to 2016, and that reserved for the state company certain transportation capacity of the Integrated National Natural Gas Transportation and Storage System (SISTRANGAS) in order to guarantee that it had the necessary fuel for its strategic activities.

The National Natural Gas Control Center (CENAGAS), the manager of this system, calculated the necessary capacity for the CFE subsidiaries dedicated to power generation and signed a contract with the companies, under the condition that the granted capacity was not used for other activities, such as marketing natural gas or making it available on a secondary market.

The state-owned Pemex also received capacity in the pipeline system for its strategic activities that require the fuel, such as petrochemicals and refining, under a process called round zero. According to public information, the two companies thus account for about a third of the system’s capacity.

The rest of the infrastructure was also transferred to other gas market participants, through two stages, one of them via an open season.

But now the CFE assures that it only uses around 33% of the daily capacity that was reserved for it and the market regulator has decided to modify the resolution to allow it to be used for purposes other than electricity generation. “[The change] would favor the efficiency of the use of capacity and would recognize the right acquired in favor of this productive State company [the CFE] by maintaining said capacity in its name. (…) It could contribute directly to the fulfillment of the guiding axis of the national economy consisting of the rescue of the energy sector”, reads the resolution voted last Friday in the plenary session of the regulator.

But now the CRE has eliminated the condition under which this capacity was given to the national company and the CFE –through CFEnergía– would become the company with the largest volume of transportation capacity, since it already has 100 % of the capacity of the gas pipelines that were signed during the past administration and renegotiated at the beginning of this, such as the Texas-Tuxpan marine gas pipeline.

“The CFE is already very strong in the commercialization of natural gas for all the infrastructure that it obtained after the contracts [for the gas pipelines of the past administration], because it already has 100% of the capacity of those contracts. By giving it more capacity in the SISTRANGAS, its market power is further increased. Now you have an agent who is going to be able to use that power to limit or condition access to other competitors,” says Daniel Salomón, a lawyer in the sector.

The Hydrocarbons Law, which emanates from the 2013 reform, established that once the capacity was no longer used by state companies, CENAGAS must make the infrastructure available to the rest of the companies in the market through open seasons. . But with the change, the capacity that is no longer used remained in the hands of the state company.

The Commission has stopped using the transmission capacity that was initially ceded to it for different reasons, some of its plants have reduced their consumption of natural gas, its supply has been diverted to the new gas pipelines and the sites from which it is supplied have changed. produces the fuel. “The CFE is becoming a great hoarder where it has capacity that it does not use, but that it can use whenever it wants and this blocks other users from having access to the market. This gives it an advantage over its competitors,” explains Eduardo Prudhomme, from the Gadex consulting firm and a former official of the previous administration.

The 2013 reform also sought to open up the use of the pipeline system. In this way, the exclusivity of the operation of the national pipeline system was removed from the state-owned Pemex, which later gave rise to the creation of SISTRANGAS – of which six other pipelines that were not part of the first system are also part.

Now, with this change, industry analysts say that the state-owned company could take a leading role in the market, offer lower rates to fuel buyers – who are generally industrial customers – and displace other players in the marketing market. “Instead of you being able to have a lot of bidders, CFE becomes too strong to be able to compete. In the short term, the CFE tries to win customers with a lower price, but in the long term it erodes competition and becomes a major supplier,” says David Rosales, senior energy consultant at Elevation Ideas, a specialized consulting firm.

Until now, the natural gas market had been left out of the regulatory changes, although the market regulator has also paralyzed some permits to sector participants.

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