Mexico has always stood out for being one of the first few countries to liberalize its natural gas midstream and downstream industry, while reserving the right to compete and participate in the production of such fuel. Participation in this stage was reserved exclusively for the State, who in turn acted through Petróleos Mexicanos (“PEMEX”) and its subsidiaries.
A Generation of Change for the Industry
The Mexican petroleum industry (oil, gas, refined products, and basic petrochemicals), except for the natural gas midstream and downstream industry, was subject to the vertically integrated monopoly that the State established in favor of PEMEX.
In the last 30 years this has slowly changed, allowing, and increasing number of participants in different activities regarding this industry. The State’s policy on petroleum has tended towards liberalization, evidenced in the different amendments and the creation of regulatory bodies that have been a central topic in the most recent administrations.
Private Company Participation Drives Growth
In 1995, private participation significantly increased thanks to the amendments made to the Petroleum Law, through which private competitors could participate in transportation, distribution, storage, and marketing of natural gas. Liberalization was also implemented that same year, through the publication of several new Natural Gas Regulations.
In 1998, natural gas became the best choice for users, primarily industrial customers, thanks to the new environmental standards for the use of low-sulphur fossil fuels. One of the most important gas and electricity regulatory bodies was created, a federal agency called the Energy Regulatory Commission (“CRE”, for its acronym in Spanish).
Today, CRE is responsible for regulating and supervising most of the activities related to gas and electricity and is responsible for issuing many of the necessary permits for these activities.
Even though the tendency was towards liberalization, there were still stages and sectors completely in charge of the State. Among them, the exploration and production (“E&P”) of natural gas was still monopolized by Pemex-Gas and Petroquímica Básica (“PGPB” for its acronym in Spanish) – a subsidiary of Pemex – but it still competed with private entities in the natural gas transportation and marketing segments, but without participating in the distribution business.
To modernize the oil and gas industry, in 2008, the Administration created the new National Hydrocarbons Commission (“CNH”, for its acronym in Spanish) to regulate the upstream sector.
Energy Reforms Attract Investment
The real change came in 2013, when the Constitution was amended, breaking the existing monopoly of oil, gas, and electricity that up until that moment PEMEX and CFE had. This opened the door for competition, at the same time changing most regulations regarding the natural gas industry.
The use of natural gas has been primarily prompted by the power sector and its production has increased over the last 20 years. This has led to constitutional and legal changes that have opened the upstream market considering PEMEX’s inability to increase natural gas production. To increase the production of domestic natural gas, CFE has commenced drilling programs in shallow waters to compensate for the expected decrease of production in the Cantarell field.
As a result of the 2013 constitutional reform for the energy sector and subsequent statutes, important changes for the natural gas transportation industry have occurred. The most important of those changes is the creation of National Centre of Gas Control (“CENAGAS” for its acronym in Spanish), a new public entity that is not a subsidiary of PEMEX. CENAGAS has assumed PEMEX’s gas transportation assets and operations.