MEXICO CITY – With expectations that it will partly benefit from lower prices due to the shale gas revolution saturating American jurisdiction, the state-owned electric utility of Mexico sees preponderance of gas to satiate its required capacity additions.

Like in various countries around the world, Mexico has been re-examining gas as a fuel that could bridge its energy needs into a more secure track. It goes alongside recent technology development cycles, such as the commercial-scale introduction of floating storage and regas terminals; as well as the mutually-reinforcing factors that are seen pulling down gas prices to basement level for a longer period.

In the investment blueprint set out by its Comisión Federal de Electricidad (CFE), Mexico will be adding more than 19,000 megawatts of power capacity until 2018; and close to half or around 9,628 megawatts will be fueled by gas.

Its other fuel options would be coal for additional 2,800MW capacity; hydro for close to 1,200MW capacity; geothermal for 158MW; wind for 408MW; and other thermal facilities.

For gas, the country has been looking at sourcing its supply via domestic production and from imports, including liquefied natural gas (LNG) from the United States, which may be transmitted into its power facilities through its Manzanillo and Altamira storage facilities and pipelines.

The investment covenant being advanced by CFE for the added US$48.3 billion worth of project tenders it has been soliciting for the expansion of its power generation sector would be through public private partnerships (PPP). The state-owned power company has so far labeled its plunge on this sphere as a “success story” – tracing it as far back as the time that it allowed the entry of independent power producers.

US-headquartered Intergen is among the companies which is expanding its capacity in the country via its proposed 220-MW San Luis dela Paz gas-fired plant, to be sited close to its existing 600-MW Bajio plant near the city of Queretaro.

Frank Thiel, Intergen vice president and Mexico regional manager, said the project deal is covered by a 20-year power purchase agreement (PPA) with CFE. In general, the experience of IPP players in Mexico has been that the government, being the counter-party in the agreements, has always been very strict in enforcing its contractual arrangements that it compels power producers to be very efficient in their operations, otherwise, they can be slapped with penalties.

Under the PPP scheme being advanced by Mexico, the IPP investor will finance and build the project; while CFE will under-write supply contracts for their generated capacity. At the end of the contract, the state-owned power utility gains ownership of the power assets.

The CFE further explained that contracts are being awarded to IPP sponsors based on the “best bid in terms of lowest leveled energy price taking into account investment and plant efficiency.”

While the financing of the project is tossed as a sole responsibility of the project contractor, it added that “the aim of the contract is to provide CFE with exclusive rights on capacity over a 25-year period against an agreed payment.”

Such investment design is very much similar to the IPP contracting system propagated in the Philippines during the 1990s. However, with the passage of the Electric Power Industry Reform Act (EPIRA), the state-run National Power Corporation (NPC) has been de-monopolized and sternly prevented from contracting new power capacities even under the PPP scheme being advanced by the Aquino administration.

In the propounded development of the Philippine gas industry, the government is setting goals on offering the LNG facilities (i.e. regas terminal) and even the pipelines under PPP deals, but the off-take arrangement on the power generation side will be left completely to the discretion of the private sector takers.

For most of Asia and also in Europe, the expected saving grace in the ‘gas game-change’ would be LNG. It is now gaining traction in China and Pakistan’s energy sector as well as in the Southeast Asian region, such as Singapore, Thailand and even the Philippines.

It has been specified that LNG supply growth will be amplified by 6.0 to 8.0-percent; and at current production rate of unconventional gas, this particular resource genre would be able to satiate one-fifth of the world’s future energy needs.

The abundance of newly-discovered gas through fracking process at shale (tight gas) formations and the frenzy of bringing them straight away to markets had also been entailing stricter policy enforcements on pipeline installations.

In the United States, in particular, there is the so-called ‘gold rush’ in pipeline constructions, yet despite the required speed in putting up these facilities, policymakers remain watchful as to the concerns linked with pipeline regulation.

In particular, safety concerns on pipelines as well as siting issues have been swamping the ‘to-do list’ of energy regulators as more gas pipelines are expected to be built in the immediate term to bring the gas to end-users.

The Philippines is decisively looking at the regulatory policies being enforced by the US Federal Energy Regulatory Commission (FERC) in crafting its own regulatory framework for oil and gas pipeline operations. The country’s Department of Energy (DoE) is planning to lodge soon a legislative measure that will establish its direction on that policy agenda.