Tradition bottles up gas market in Mexico

Mar 08, 2004 01:00 AM

At 6:30 in the morning, the neighbourhood bolts awake to the bloodcurdling cry of Pablo Gonzalez ripping through the chill air: "GAAAAAAS!"
Men and women in various states of undress race to their windows, desperate to get Gonzalez's attention.
"If they want hot water, they'd hurry up and buy some gas," says Gonzalez, heaving a steel cylinder filled with 66 pounds of LPG off a truck and onto his shoulder. "Otherwise, no hot water until Thursday," he says with a laugh.

Gonzalez, who has been delivering pressurized tanks of the flammable propane and butane mixture to Mexico City homes for 17 years, is on the front lines of an increasingly combustible turf war.
As an employee of Vela Gas, one of 450 LP gas distributors in Mexico, Gonzalez represents the old guard, which has been bringing flame to Mexican home appliances via cumbersome tanks for 60 years. When the gas runs out, customers have to wait until the next call from Gonzalez, who trades a freshly filled tank for the empty one and a fistful of cash.

On the other side is natural gas, delivered via underground pipes, with a monthly bill by mail. It's been in Mexico for less than a decade and serves 21 areas of the country through 16,300 miles of pipelines. On the face of it, natural gas would seem to have every advantage. It's generally acknowledged to be 10 % to 20 % cheaper than LP gas, besides being cleaner, safer, far more efficiently distributed and a heck of a lot easier on late risers.
Yet, says Mauricio Candiani, executive president of the Mexican Natural Gas Association, "We thought we'd have 2.5 mm clients by today, but we're only at half that. It's disappointing."

LP gas still serves 82 % of Mexico's 20 mm households and 92 % of those that use some form of gas for heating and cooking -- others use coal or wood, according to the industry's two trade groups. Mexico is the world's fourth-largest consumer of LP gas, and sprawling Mexico City is the single-largest LP-gas-consuming population centre on the planet.
The gas gap isn't for lack of effort by the natural gas industry. Natural gas distributors have invested a billion dollars since a 1995 change in the Mexican Constitution allowed private investment in transport, storage, distribution and sale of the methane-based fossil fuel. Before then, that business was controlled by the state monopoly Pemex, which did little to build natural gas delivery systems.

When the law changed, big energy players from the United States, France, Spain and Belgium rushed to get a piece of this market of 100 mm people. What they've found is that they've become a test case for the unexpected difficulties in bringing something new to a country where long-established competitors fight tooth and nail to protect what they have. The LP industry has proven how carefully applied pressure and publicity can slow a shift that seemed inevitable.
"We're still completely convinced that the expansion of natural gas in Mexico will eventually happen," says Claudio Rodriguez, director of development for MaxiGas Natural, a division of Gaz de France.

MaxiGas is Mexico's second-largest natural gas distributor, with about 150,000 clients in the states of Puebla, Tlaxcala and Mexico, but that's half what it projected when it came to Mexico five years ago.
"The problem here is one of public image," Rodriguez contends. "Mexicans are convinced that LP gas is safer."

Rodriguez and the others pushing this change offer plenty of reasons why delivering natural gas via pipelines is the less risky road. Natural gas is lighter than LP gas and thus dissipates faster if there is a leak, reducing risk of explosions. It's also less likely to get jolted because it is transported in stationary, shock-resistant polyethylene pipes, while LP gas is trucked around in top-heavy steel cylinders and accident-prone trucks.
In 2003, some 200 natural gas leaks were reported in Mexico City, compared with 30,000 for LP gas, according to figures from the Department of Energy and the Energy Regulatory Commission.The LP companies effectively deliver their message by using their highly visible truck fleets.

On the side of the truck driven by Vela Gas' Gonzalez is a huge banner.
It reads: "A natural gas leak provoked explosion, panic, emptied schools, businesses and 5,000 residents. Citizens, we'll be next. Protect our family."
Above the truck's cab, a second, even more incendiary message, reads: "Don't allow the installation of a bomb under your house. Natural gas has no odour. How will you know if there's a leak? When you're poisoned or there's an explosion." While natural gas doesn't have an odour, a smell is added to warn people of leaks.

Natural gas advocates cite the banners as just one component of a carefully administered campaign designed to frighten the public. These are misinformation campaigns designed to encourage people not to get connected, says the Natural Gas Association's Candiani. They accuse LP distributors of everything from strong-arming community leaders into opposing pipeline construction to intentionally rupturing pipes in order to draw bad press. The LP gas industry vigorously denies the charges.
"There is no risk of that kind of behaviour in an industry as organized and serious as ours," says Enrique Arizmendi, head of the Mexican Association of LP Gas Distributors and Related Businesses, which represents about 150 private gas companies. "We simply have more years of presence, better infrastructure and are very well connected with the needs of Mexican consumers."

Then again, it often seems like the natural gas industry is its own worst enemy. The anti-natural gas sign on the truck refers to an incident in early November of last year, when a leak from a gas line in the southern Mexico City neighbourhood of Xochimilco led to an explosion that injured three paramedics and caused the evacuation of schools, businesses and 200 families.
In the ensuing media fire-storm, Metrogas, a unit of Barcelona-based Gas Natural and holder of the exclusive right to distribute natural gas in Mexico City, added to the trouble by generally refusing to speak to the news media. It had two more leaks in November and was hit by an $ 800,000 fine by the Energy Regulatory Commission. The commission also indefinitely suspended gas installation by Metrogas in Mexico City.

MaxiGas' Rodriguez, meanwhile, says the negative reaction to the event went far beyond Mexico City.
"Even though we have nothing to do with the Metrogas leaks, they've affected us as well," he said.
His company, though, took to the offensive and launched an education campaign aimed at local leaders and consumers. Rodriguez claims that the acceptance rate in neighbourhoods where natural gas is able to get its foot in the door -- usually after months if not years of drawn-out permitting -- is 60 % right off the bat, rising ultimately to 80 %.

A new study by the Mexican secretary of energy released in January predicts that LP gas market share will fall nearly 20 percentage points by 2012 to about 73 % of gas-using households. Natural gas would more than triple its share to 27 %.
But there are limits to how far natural gas can go. Because of the expensive nature of installing gas lines, they're practical only for densely populated areas. For rural users, bottled gas is almost certain to remain king.

And then there is tradition. Mexico's tallest building, the 740-foot Torre Mayor, which was completed last year, relies on LP gas pumped into massive underground tanks by trucks to run its boilers.
"Customs aren't that easy to change," the LP Gas Association's Arizmendi says. Or, as Gonzalez put it, sitting atop a pile of LP gas cylinders in the back of his truck: "It might work in other countries, but here, no. We're just not ready for it."

Source: Chronicle
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