Suspension of Mexico's natural gas purchasing rules 'good news' – former regulator

A decision by a Mexican supreme court justice to issue an injunction blocking energy ministry (Sener) rules that force private firms to purchase natural gas exclusively through State entities is “good news,” Mexican energy expert Eduardo Prud’homme told BNamericas.

Prud’homme, speaking to BNamericas on Thursday, said that even though a final decision is yet to be made, the suspension is positive because it prevents sector-wide enforcement of the Sener rules that were issued in June.

On June 13, a Sener memo ordered energy regulator CRE and natural gas grid control center Cenagas to modify gas transport regulations in favor of CFEnergía, the fuel sales subsidiary of state-owned power utility CFE.

Then on June 27, a memo from Cenagas identified nine reception points in Mexico’s integrated natural gas pipeline and storage network (Sistrangas) that are subject to the directive in favor of state companies and gave them until August 13 to prove that they had contracted supply with oil company Pemex or CFE.

The injunction, published on Tuesday, was requested by competition watchdog Cofece as part of a constitutional controversy filing.

This is just the latest in a string of lawsuits Cofece has filed to block the government’s efforts to cast aside free competition provisions built into the 2013-14 energy sector reforms.

And importantly, said Prud’homme, by accepting Cofece’s constitutional controversy, the supreme court will have to weigh up the rules carefully and make a final ruling.

“From a legal perspective ... if it is analyzed properly in court, then it will be very clear that Sener's measures attack competition and cause forced intermediation,” said Prud’homme, who is also a former head of Cenagas’ technical management and planning unit.

“This raises prices, which is the opposite of what you get with competition,” he added.

Furthermore, Prud’homme said, the Sener measures serve to concentrate the market by eliminating existing and future players in the Mexican natural gas market.

“Obviously, it also gives space to CFE to manipulate prices in supplying the electricity market, where it also participates,” he said, “so there’s a double impact here.”

“I do think Cofece has a winning case,” he added. “Even so, Sener is going to have to introduce its arguments, which are totally bogus.”

He said the rationale Sener gave with its orders is that the government is battling under-utilization of the natural gas network in the country and is doing whatever it takes to optimize and minimize idle capacity.  

“But this is completely spurious,” said Prud’homme. The under-utilization only occurs because the pipelines just carry the shipments being ordered."

He added that another solution might be to take the unused capacity and create a secondary market, potentially bringing new gas suppliers and off-takers into the economy.

“If the industry really had a problem, it can be solved that way,” he said. “But no, it's a problem of a particular company, and actually, the problem is about hoarding [capacity]” as well.

“CFE could reallocate that capacity through the market. But that would mean making concessions, where it would no longer have control over that capacity ... either give it up or sell it, and that's something they don't want. So, they want control and they want to monopolize,” said Prud’homme.