Thursday, June 20, 2024

Interruption in gas supply will cost industry 18bn pesos: business leader

The industrial sector in the north of the country will see losses of 18 billion pesos (US $890.9 million) over the next four days due to the interruption in the natural gas supply caused by cold weather in the United States, according to a business leader.

Enoch Castellanos, president of the National Chamber for Industrial Transformation (Canacintra), said that factories along the northern border will only be able to operate at 30% of their full capacity this week due to gas shortage.

A cold snap in the United States affected gas supply on Monday due to the freezing of pipelines in Texas, the Federal Electricity Commission (CFE) said. The lack of gas caused a major power outage on Monday that affected some 4.7 million people in several northern states.

Power was restored to 79% of those affected by late Monday after the CFE injected its gas reserves into power plants in the north of the country. Consignments of natural gas are also being shipped by sea to the ports in Manzanillo, Colima, and Altamira, Tamaulipas.

The National Energy Control Center cut electricity supply on a scheduled basis on Monday night to reduce pressure on the national electricity system, with interruptions affecting several states including Morelos, Puebla, Veracruz, Michoacán, México state and Tlaxcala.

Castellanos said that Mexico is vulnerable to natural gas supply problems because of its heavy dependence on imports from the United States – about 70% of the gas used domestically comes from the U.S. – and because the federal government has not exploited gas wells in the Gulf of Mexico and in states such as Nuevo León, Coahuila and Chihuahua.

The Canacintra chief said that gas wells assigned to Pemex haven’t been tapped and that the government has put an end to oil and gas block auctions that would allow private companies to invest in the natural gas sector.

“They [the government] are neither eating nor letting others eat and what we have is a nosedive in gas production,” Castellanos said.

However, a change in sentiment is apparently afoot: President López Obrador said Tuesday that in light of Monday’s blackout, the government will seek to move towards self-sufficiency in gas.

“The power outage came about because we’re producing electricity with gas that is bought in Texas. And with the bad weather, with the snowfall, the gas pipelines were affected and the price of gas increased like never before. … Now we feel that we must try to be self-sufficient,” he said.

Mario Canales, a private sector energy consultant, said that weather forecasts for the next four days in Texas and parts of northern Mexico are not encouraging and predicted that there will be further power outages. He said that the CFE’s power generation capacity as well as industries that depend on natural gas will be affected by a lack of gas supply this week.

To offset supply problems, Mexico needs natural gas storage capacity of 20 days but it only has two or three days of capacity, Canales said, describing the predicament as a “serious shortcoming.”

Allowing the private sector to build storage infrastructure is urgent from an energy security point of view, he added.

César Cadena, president of an energy industry group in Nuevo León, said that Mexico’s storage capacity might be best measured in hours rather than days.

“The gas storage Mexico [supposedly] has is for a day and a half of consumption but now we’ve been given proof that in reality it’s not even that and that the storage we have might really be [just] hours,” he said.

José Ignacio Martínez, coordinator of the Laboratory of Commerce, Economy and Business at the National Autonomous University, said Monday’s blackout and ongoing natural gas supply problems will cause delays in the shipment of goods, including automotive products, to the United States and Canada.

Miguel Reyes, a CFE director, said Monday that Pemex needs to increase its natural gas production in order to increase supply to the state-owned power utility and guarantee the reliability of the national electricity system. He noted that the CFE uses 60% of the natural gas Mexico buys from the United States, adding that it is locked into 25-year contracts that cost the company 60 billion pesos (US $3 billion) a year.

Later on Monday, the CFE said it would make increasing storage capacity part of its commercial and operational strategy. Doing so has “strategic value because it is a way of maintaining natural gas reserves to confront contingencies in Mexico,” the company said.

López Obrador used the blackout to further justify his government’s decision to build a new US $8-billion oil refinery on the Tabasco coast, which has been criticized on the grounds that it diverts resources from Pemex’s more profitable exploration business.

He said the lesson that must be learned from the outage is that Mexico needs to be self-sufficient in the production of all fuels.

“In irresponsible technocratic logic they say, ‘Why are you building a refinery? Why are you going to produce gasoline?You can buy it. Dedicate yourself to selling oil, that’s where the business is.’ But they don’t take other considerations into account,” López Obrador said.

Source: El Economista (sp), El Financiero (sp), Reforma (sp), Milenio (sp)

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