POWER March 2013 - 54

POWER MEXICO
Global Business Reports
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ing system has resulted in the distortion
of market signals, making investment
more dificult and less proitable. " Mexico
has the potential to produce a lot
more conventional and non-conventional
gas - shale - and as you produce more,
the argument for infrastructure obviously
increases. There is an interest
right now in importing more shale gas,
which is also a justiication for increased
infrastructure. Mexico has a system
in which energy prices, especially
the fuels from the oil industry -
gasoline, crude oil, fuel oil and natural
gas - have had their prices linked historically
to the prices in the United States;
in other words, the reference price.
Essentially, if you have a cubic meter of
natural gas in Mexico, why would you
sell it in Mexico for $2 when you can
sell it in the US for $4? As a result, the
prices have been linked and this
is a
system that has worked reasonably well
in the past. However, with natural gas,
this system starts to have cracks; the
natural gas at $3 per cubic feet in
Mexico relects conditions in the US
market in which there is a glut of natural
gas, where there is vast infrastructure
that we do not have in
Mexico.
The price of natural gas
in Mexico of $3 per cubic feet is artiicial;
it does not relect the realities of the
Mexican market, nor does it relect infrastructure
and supply. It is a gas price that
is causing demand to rise with no ability
to in fact meet that demand, " he says.
Despite these fears, Calvillo, CEO
of Fermaca, is quietly conident of
his company's ability to retain competiProspective
Shale Gas Basins
Source: US Energy Information Administation
tive costs, a key advantage which allowed
Fermaca to win the Chihuahua bid.
Calvillo's focus is on the opportunities
he sees in the market during " the golden
age of gas. "
" Once these pipelines are built and online,
Fermaca will be responsible for the
transportation of 20% of Mexican gas
consumption. In the past three years,
our growth has been phenomenal; we
are 10 times bigger in terms of company
value. Now we're seeking to win several
of these projects and position ourselves
as the most important natural gas pipeline
company in Mexico. We have invested
$600 million in the past four years
and have been very fortunate to close
our inancing. "
The Impact of Subsidies
Another factor that continues to
make gas extremely attractive in Mexico
is the presence of subsidies, which
affect the market in a number of ways.
The CFE tariff structure is designed
to subsidize the cost of electricity that
is consumed by residential and agricultural
end-users and offers preferential
rates to low consumption households
whilst penalizing high consumption
households. However, as a direct method
of tackling poverty this is ineffective. In
2009 The World Bank claimed that " the
subsidies delivered through the tariff
structure are regressive, with the poorest
40% of households capturing only
about 30% of the subsidies. This is
signiicantly less than they would receive
if subsidies were randomly distributed
to all
utility customers. In contrast, the
richest 40% of households receive 50%
of the subsidies. "
These subsidies also create an unfavorable
regulatory environment for renewables
which, whilst already seen to
be more expensive and less proitable
than conventional fuels, must in addition
compete within the Mexican market on
an uneven playing ield.
The Renewables
Sector: In need of a
helping hand?
Whilst some countries in Europe have set
aside subsidies for technologies whose
appropriateness is not immediately apparent,
Mexico does not have subsidies for
renewables yet possesses some of the
best resources in the world. The development
of renewables has become headline
news as climate change fears grow, but
it also plays an important role in protecting
against price shocks through a diversiied
energy basket. Estefano Conde,
manager of social communication for
CFE, highlights the achievements in the
sector to date: " Former President Calderon
aimed to increase the participation of
renewables in the energy matrix to 25%
and, at the close of his administration,
CFE met that goal. A key factor in
this is the development of major hydroelectric
projects. "
Mexico's further aim to source of 35%
of its energy from clean energies by 2026
will be achieved through the market's
unique synergy between political will and
private means.
Vicente García Montero, commercial
director of Isolux Corsan Mexico, the
Spanish engineering giant, explains the
Eagle Ford,
La Casita
GULF OF MEXICO
Pimienta
Pimienta Tamaulipas
PACIFIC OCEANO NC
Maltrata
balance as it applies to the Isolux Corsan:
" Our main client is CFE as they are the
main player. Now that the private sector
is increasingly important due to co-generation
and self-supply, we are diversifying
our client base into the private sector. We
offer assistance in transmission and wind
farms projects for example. "
IPPs supply 23.1% of Mexico's energy,
300km
which represents 12,213 MW, but with
IPPs aside, the private sector permits
represent an extra 10,011 MW of installed
capacity, 48% of which is self-supply and
33% is co-generation (the rest consists
8
Global Business Reports // POWER MEXICO
March 2013
http://www.gbreports.com
POWER March 2013

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