Guillermo Bilbao, energy and utilities expert at PA Consulting, discusses Mexico's Federal Electricity Commission's successful renegotiations with main contractors to build gas pipelines in Mexico.
Renegotiations by Mexico’s Federal Electricity Commission (CFE) with four of its major contractors to set in motion the construction of five segments of natural gas pipelines could benefit users across the country without incurring in business losses for state-owned companies, assured energy sector experts.
Guillermo explained that the renegotiated tariff for the new pipelines will mean higher costs in the short-term, but these expenses would translate into savings on the long run because the original contracts included annual fixed tariff adjustments, whereas the new negotiation has variable adjustments exclusively for the tariff’s fixed costs.
He adds: “Whether or not these pipelines will be economically viable depends on the price of natural gas compared to other fossil fuels or generation technologies. PA has estimated gas prices to remain relatively stable, though with a modest increase by 2025.”
Guillermo adds: “With the new tariff, savings will largely depend on the usage rate of the gas pipelines. If the rate is low, the government will have to pay the tariff, even if the pipelines are not used to their full capacity.”
These contracts mean there will be approximately 7 billion cubic feet per day in gas pipelines, which will cover Mexico’s growing natural gas demand. Industrial demand for natural gas has been forecasted to grow from 1.6 billion cubic feet in 2018 to over 2.1 billion by 2025. At the same time, the energy sector has projected its demand to go from 3.9 billion cubic feet in 2018 to 4.4 billion by 2025.
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