Mexico’s natural gas future

What advances do we see in the upgrade of Mexico’s pipeline network?
Mexico is renewing its pipeline network at a national level through the Sistrangas expansion plan, which dates back to 2014. The country has already developed 75% of that original project yet we all expected that development to move quicker. The pandemic has obviously taken a toll on its progress. Also, many of the networks granted to private companies were not completed and many developments needed to connect clients are almost nonexistent.
In general terms, the country’s pipeline network is still scarce and the major part of the existing pipeline system is ageing. This gives way to other areas of potential interest such as virtual or “wheeled” pipelines, which can be an effective complement to the Sistrangas system, taking gas to industries, vehicles and people. Gas is, without a doubt, the transitional energy source in Mexico, being cheaper, safer and environmentally friendlier, but it is still at an infant stage. Additionally, we have direct access to it through the US, from which 75% of our gas is imported. Sistrangas is a beneficial proposal for the country but it needs to be supported by clear-cut policies to guarantee the access to natural gas in practice.

What constraints in progress has the gas sector experienced lately?
Mexico needs clear and stable government policies in the gas space to incentivise investment. There has been a lack of promptness when it comes to regulation approvals. The terms of access to permits are very slow and, in many cases, very expensive. Some virtual pipeline projects have imposed regulatory requirements that only an extraordinary storage plant would have needed. This doesn’t mean that we should play down safety standards when approving a certain project, but if we had clearer and simpler policies, players would be able to meet the stipulated requirements and enter the market quickly, being able to offer the product to the end user.

What challenges is mini-LNG experiencing in Mexico?
LNG is definitely the future in Mexico. There are three very important LNG projects, two on the Pacific coast and one in the Sea of Cortez. We have to come to terms with the fact that there is huge potential in the transportation of LNG and its subsequent regasification for end users. Permit terms and procedures are still long and complex, which hampers the growth and potential of mini-LNG in this country.
This has held back the potentialising of the entry points of LNG so that we can then transport it to industry, especially in regions where there is a high demand for energy such as Baja California. The same goes for the plenty of mining spots across the country which have high energy consumption levels. Unfortunately, we’re a step behind when compared to the global energy matrix. Other countries are experiencing rapid developments in their gas scenes while in Mexico we’re only getting started.

What traction is the CNG space experiencing through vehicular natural gas (VNG) and industrial use?
In 2021, Mexico had 63 service stations offering CNG for vehicle use. This represents a gradual increase compared to 2019, when the country had 35-40 stations. Despite the slowdown, the growth and investment interest in VNG has been constant. For example, one of our VNG clients, Natgas, has an ambitious growth plan that includes the setting up of 42 stations – 20 are already installed while 22 more are in the pipeline.
Constraints have been clear, including the slowing down of station permits for the VNG sector. This has definitely been an important blow to the hype the sector had been experiencing. As of today, CNG stations are not even capable of supplying 2% of the total market demand, which is a clear indicator that more effort and investment is required in this area.
On this note, new VNG consumers are cropping up. While the VNG consumption matrix has been focused on taxis and public transport (i.e. buses), today highway transportation has started to gain terrain as an end user, with companies such as Scania or Sinotruk switching to VNG. As an example, Truca, which has more than 400 truck units, is migrating to CNG and mini-LNG. This means that there is a more versatile CNG matrix specially focused on VNG.
Regarding industrial CNG, there is still a high unmet demand. In Mexico, companies establish themselves geographically where it is more beneficial for them, be it for weather conditions or commercial reasons, which means they are not necessarily located close to pipelines. Therefore, there is a great potential for wheeled transport.

What level of complexity did Promotora Energética E3’s first project for brewing giant Grupo Modelo have?
As a firm, we developed the first virtual pipeline in the country, through an EPC project for VPM [Virtual Pipelines de Mexico]. This venture involved a master station in San Luis Potosí which transported gas on wheels for almost 300 kilometres to Calera de Victor Rosales, in Zacatecas, to supply the Modelo brewery. We transported 14,000 cubic metres per hour of decompression and there were over 35 units in the conveyor belt.
We were in charge of the EPC works for the whole project, which involved nine IMW technology compressors. The entire virtual gas pipeline was done with type four Hexagon Lincoln units and a nine in-line IMW decompression system. We also operated the project for around six months, after which we handed it over.
At the time, this was the first project of its nature in Mexico, and the biggest in the world regarding its conveyor belt capacity. At the same time, it turned out to be challenging due to the high quality and standard requirements established by the Modelo group. Looking back, one could say that the calibre, complexity and success of this project gave us solid grounds for subsequent projects coming our way.

What differentiated value is found in the services Promotora Energética offers?
As a company we’ve always been one step ahead, which includes going to states where there is no gas supply, finding the main actor and showing them opportunities and what we can offer them.
One of our edges is the fact that we provide the client with the entire range of solutions they need: from a financial model and in-house design all the way to the operation of a given project. Our financial model even includes actively seeking funds for our clients. We also perform the engineering design with an in-house project department in charge of the electrical, mechanical, and civil design for each project. The construction phase is done through subcontractors.
We have strategic alliances for each discipline for project development, but the engineering is done with our own personnel. The permit procedures are also done internally, while we also take care of the startup and launch of the project. What’s more, we have 23 technicians in charge of startups, launches, guarantees and maintenance contracts. This means we offer integrated services, covering gas projects from A-Z.

What elements have turned out to be key to securing projects?
We want to create long-term collaborations with our client, consolidating loyalty-based bonds. As a result, we have clients that have been with us from the beginning. After a decade, we’ve managed to harness the loyalty of the main players in the sector. Here, our alliance with IMW is elemental, as we’re their exclusive technology distribution in Mexico and goal partner on a global scale. Companies like Natgas, ENA and Grupo Simsa have enhanced their position in this market via the IMW technology we provide. These types of alliances and our basis of loyalty is pivotal, as we don’t seek projects for today, but more for tomorrow – long-term ones. Moreover, we are also open to developing projects beyond Mexican borders. We’re currently working on that.
Project-wise, we just finished an EPC project for Cryoinfra in 13 months, managing to complete it successfully despite the pandemic. This was a complete EPC project, starting from design, permits and operation support, and it commenced operations this year [2021].

How involved does Promotora Energética aim to be in the untapped area of biogas?
We’ve always considered biogas and it has been part of our strategic plan for the last two years. However, it hasn’t had the evolution we had hoped for, mainly because this space is relatively limited in Mexico. While in places like Europe or the US they have biogas subsidies, the Mexican government’s support for this type of project is nonexistent. This makes investment in this area difficult.
Biogas is definitely emerging as an alternative for obtaining biomethane. We are currently evaluating four different projects in different areas of the country and we are looking at 2022 as the year to start the first project. To this end, we’ve tried to find a local company with experience in this area to start a collaboration so we can offer our clients the entire range of possibilities. One part of the project is transforming the biomass into biomethane, but then you need to define where you’re going to use the biomethane you’re producing.
The downstream part of the process – as in compression and loading the product onto trucks to then deliver it to the end user, is a part of the equation where we can play a leading role. As an example, cow manure is produced in very large quantities in Mexico, yet has no regulation. Ironically, companies such as Clean Energy Compression, the California-based owners of IMW, obtain 70% of their natural gas from biomethane as a raw material. The biogas potential is only starting to emerge here and has very interesting growth potential.

What short- and long-term plans does the company have for 2022 and beyond?
Today, we have a market penetration of over 75% at a national level, both in CNG and VNG, being a true referent in this market in Mexico. At the same time, we are present in 27 states and we expect to be present in 30 by 2022. To this end, we aim to enter areas such as Quintana Roo and Baja California. If these goals are supported by the Sistrangas project completion, the arrival to new areas will be easier. This is our short-term goal.
Our long vision is determined by the pace and trend of the market. The pandemic has shown us that one has to adapt one’s long-term vision to the market needs. Here, we’re considering expanding our portfolio and venture in new areas such as hydrogen, SPVs with capital funds around the biomethane business, LNG full-chain solutions for the heavy trucking industry and direct gas pipeline construction.
Planning long-term goals is very difficult at this point in time given the shifting environment we are in, but diversification has proven to be the key to success in rough times and E3 is open for business as always putting to work our expertise, well-earned reputation and our purpose to get things done the right way.