Developing Mexico's natgas seen as serious challenge

Apr 25, 1997 02:00 AM

Mexico is rallying investors to its natural gas market and analysts say distribution, storage and transportation may be the best way to participate in the nation's expected energy boom. But initial investors in natural gas distribution warned that a natural gas culture in Mexico is virtually non-existent and government expectations are high. Government, analysts and investors gathered recently to discuss natural gas opportunities in the country.
Government officials cite a growing economy, an expected doubling in demand for the fuel in the next 9 years. "This rapid growth opens wide opportunities for investment, national and foreign, to answer to greater production and processing infrastructure," Energy Minister Jesus Reyes Heroles said. He told reporters Mexicans have been asking for the fuel in the northern parts of the country, where the proximity to the United States has taught the benefits of natural gas. "To our surprise, when talking to people about building the pipeline, they showed more interest in when they would get the service then what damage the pipeline would do to the community," Enova International Vice President George Liparidis said of Mexicali, where the firm was part of a winning distribution bid. In contrast, the great majority of Mexicans use LPG. "The culture of natural gas in Mexico does not exist," Energy Regulatory Commission president Hector Olea said, adding private firms can help promote the fuel. "Natural gas is disadvantaged by its pricing mechanism vis- a-vis fuel oil," Mexican Natural Gas Association President Angelica Fuentes added.
By gradually removing subsidies on the more commonly used LPG and fuel oil and passing stricter emissions laws, the government has moved to discourage use of the more polluting and hazardous fuels. Yet despite citing the benefits of methane, or natural gas, analysts foresee difficulties in creating demand for the fuel away from the border states. "All the culture exists at the border. It's pushing it further south that's our concern," director of the University of Houston Energy Research Institute Michelle Foss told. Concessions for natural gas distribution so far have been in the North, Mexicali and Chihuahua, both won by a consortia of Enova, Pacific Enterprises International and Mexican builders Proxima. The capital of northern Sonora state, Hermosillo, is scheduled to be awarded in the next two weeks.
Pacific Enterprises Vice President John Peterson said the company's experience in Mexicali showed, "Opportunities are small and acceptable returns difficult to achieve." He added that the government's target for residential service were high. KN Energy Vice President William Garner detailed the company's electronics sales, Internet and additional services to natural gas at its Denver, Colorado hub, saying only about a third of Hermosillo clients would be able to afford them.

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