El Salvador's natural gas law, 10 years on

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Friday, March 16, 2018

In May, it will be 10 years since El Salvador enacted its natural gas law. To learn how the market has evolved and what is to come, BNamericas spoke with Rocío Aquino, fuels director at the country's national energy council CNE.

BNamericas: The natural gas law of El Salvador is going to be 10 years old. What advances have been made since its publication in 2008?

Aquino: El Salvador is the only country in Central America with a natural gas law that, as you mention, has been in force since 2008. In that sense, the existing regulatory framework supported the proposal from the company Quantum, now called Energías del Pacifico (EDP), in 2013, when it was the winner of generation of 355MW using natural gas.

Subsequently, in 2014, the government of El Salvador, through an inter-institutional effort, developed the first regulation of the law, the "special regulation for storage, self-consumption, import and export of natural gas", which has been in force since December 2015 and which will allow regulation of all the activities to develop generation of electric power with natural gas.

In 2017, with IDB financing, a consultancy was held to support the process of supplementing regulations in El Salvador, which resulted in special regulations that include administrative procedures and technical regulations for the areas of land transportation, service stations, conversion and habilitation workshops, pipeline transport and network distribution. Likewise, there's a first draft to establish the methodology for calculating tariffs for pipelines and networks.

We're currently in a process of public consultation that we expect to conclude during 2018 for all the regulations to come into force soon.

BNamericas: How has gas been integrated into the energy matrix? How has it been promoted among the population, trade and industry, and what reception has it had?

Aquino: Natural gas in El Salvador will initially be used to generate electricity. The EDP plant is expected to start operations in 2021 in Acajutla, in Sonsonate department, roughly 80km from the capital, San Salvador.

In the framework of the tender, social investments by the company were considered. In this regard, EDP has started a process of education of the population living in areas near the plant so that they are generally informed about the generation process, the benefits and handling of natural gas, in order to avoid fears among the public.

At the industrial level, during 2016 a survey was conducted through the IDB to evaluate the potential for consumption in El Salvador, with quite positive results, as the companies highlighted their interest in the entrance of natural gas, given that this product can change the cost matrix of their production processes and, at the same time, reduce emissions to the environment.

In the longer term, we're sure that natural gas will be used in vehicles and later in homes, so we're preparing regulations for each of these activities.

BNamericas: On what legislative and regulatory issues are you currently working for gas?

Aquino: As mentioned previously, in 2017 we completed the special and technical regulations through a consultancy with the IDB.

In December 2017, the board of directors of the CNE agreed to initiate a process of consultation on the entrance of natural gas for industry, thermal generators and other interested parties, so that all of them were aware of the contents of the regulations prior to their going into force.

We expect the consultation process to be concluded during 2018 and then the special regulations, which contain the administrative procedures on the regulated activities. These will be signed by the president of the republic and published in the official gazette so that they go into effect.

In the case of the Salvadoran technical regulations (RTS), they are delivered to the Salvadoran organization for technical regulation (Osartec) for the respective procedures of entry into force.

BNamericas: How are the first regasification terminal and the associated thermal plant being developed under the project being carried out by Energía del Pacífico?

Aquino: The plant for electricity generation using natural gas is scheduled to start operations in 2021. The information that EDP has is that they have modified the original design and are currently focusing on obtaining all the permits that allow the construction.

BNamericas: Could El Salvador be the final recipient of the natural gas that Guatemala eventually imports from Mexico?

Aquino: The current regulatory framework allows El Salvador to participate as an offtaker if Guatemala imports natural gas from Mexico. In fact, El Salvador, together with Guatemala and Honduras, has already signed the second and third additional protocol to the economic complementation agreement between the government of Mexico and the government of Guatemala in the area of ​​natural gas trade and transportation, which aims to clearly establish conditions for transportation of natural gas between the signatory countries.

In addition, El Salvador has approached various companies that are thinking about starting importing natural gas with land transport, so we're also focusing on establishing the regulation that allows clear conditions for investors.

It's important to note that this can only take place if the price is internationally competitive for importation.

BNamericas: There have been talks between El Salvador and Bolivia for the latter to send gas to El Salvador, for example. Where are these negotiations at and how feasible is it?

Aquino: The governments of El Salvador and Bolivia signed a memorandum of understanding in 2016 that was aimed at cooperation through joint programs and projects, the exchange of knowledge, and training and education of human resources in the field of hydrocarbons and energy. This instrument is being directly monitored by the sector regulator, that is, the hydrocarbons and mines department of the Ministry of economy of El Salvador; however, the possibility of Bolivia sending gas to El Salvador has not been defined.