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Mexico's Gas Storage Strategy is Smart Policy

Tuesday, April 10th, 2018

By Jim Chisholm, P. Eng., Vice President Latin America, Sproule  

Hurricane Harvey, which devastated much of the southern US in 2017 didn’t hit Mexico, yet it exposed gaps in the country’s energy infrastructure.

Harvey shut down cross-border gas pipelines from Texas and disrupted LNG shipments from Louisiana. Even though West Coast pipelines and LNG terminals were unaffected, Mexico’s natural gas imports fell by 16 percent in a single day – which meant available gas supply dropped by almost 10 percent. The operator of the national pipeline network – Centro Nacional de Control de Gas Natural (CENAGAS) – had to ask end-users to reduce their consumption by 20-70 percent.

Within a week, gas flows had mostly recovered and the restrictions were removed. But the incident was a reminder of how important gas is for the Mexican economy.

Natural gas supplies about half of Mexico’s primary energy demand and about 60 percent of the country’s current natural gas supply comes from the US.

Interruptions to Mexico’s pipeline imports – or disruptions to any major pinch-point in the gas infrastructure network – can seriously impair electricity generation and impact a wide range of industries. And the risk is increasing – the country’s demand for gas is already high and is forecast to grow by about 3 percent per year over the next two decades.

SENER_Graph_English.jpg

 

(*) Information Available until the month of October 2017

Natural Gas Consumption: Total Pemex natural gas production, plus imports

Natural Gas Production: Natural gas volumes produced by Pemex, including the gas that consumes

Source: Energy Information System, Pemex Institutional Database and U.S. Energy Information Administration

Long before Hurricane Harvey, the Mexican Government had decided that the country needed a better gas storage system to handle disruptions in access.

CENAGAS and the Secretaría de Energía (SENER) have been collaborating on developing a national gas storage strategy. On March 28, they released this plan, entitled “Pólitica Pública en materia de Almacenamiento de Gas Natural” – which is ambitious in its scale and its timeline. The strategy aims to develop both “operative storage” and “strategic storage.”

Operative Storage for Supply Balance

The operative storage component involves short-term supply balancing, or as SENER says in the Executive Summary of its policy outline maintaining a steady supply of natural gas in the integrated transport systems by compensating for imbalances that might put the operation of the integrated systems at risk.”

This will require CENAGAS to optimize the use of existing systems and infrastructure – including LNG plants and pipeline packing. There will be stringent reporting obligations for gas market participants, and CENAGAS will enhance its monitoring of supply and demand so it can respond to issues and anticipate emerging problems.

Strategic Storage for Energy Security

But the policy’s most interesting component is the strategic storage. CENEGAS is obliged to develop a strategic inventory that “could be used to respond to a natural gas supply crisis and shortfalls in the natural gas supply in the different transport systems.”

The goal is to establish 45Bcf of strategic storage capacity by 202 which would allow Mexico to cover five days of national gas consumption at anticipated 2029 consumption levels. This would involve a network of underground gas storage facilities spread around the country. The first of these facilities is intended to be operating as early as the end of 2020 – less than three years from now.

The strategy has specifically identified the use of depleted gas fields as storage reservoirs to meet the immediate goal of at least 10Bcf in strategic storage. The two agencies have produced a shortlist of fields to be assessed for their storage potential.  CENAGAS is expected to hold an international public tender process for prospective developers, with tenders being awarded before the end of 2018.

Technical Considerations

Using depleted gas reservoirs for gas storage is a simple concept, but it can be complex to implement.

To be cost-effective and highly responsive to supply outages, storage reservoirs must be near existing pipelines, close to end-use markets and free of issues regarding ownership, land use and access.

Assessing these qualities is usually straightforward, but it can be more challenging and time-consuming to assess subsurface factors such as: 

  • Quality: The rock should be porous enough to provide a reasonable storage volume while being highly permeable, allowing gas to be transferred in and out of the reservoir easily. The reservoir should also have good seals so that gas does not escape.
  • Size: The field should be large enough to supply peak gas rates into the local market infrastructure for a desired number of days, but not so big that it leads to unnecessarily high development and running costs.
  • Depth: The deeper the reservoir, the higher will be the costs of injecting and withdrawing the gas.

Typically, depleting a reservoir takes more than a decade of production. But developing storage facilities requires reinjecting volumes – usually in less than a year – that may exceed the original gas in place. This type of activity places the reservoir under stresses it has not previously undergone. The reservoir will react differently to how it did when the gas was first produced – for example, subjecting the reservoir to pressures higher than original pressure can create leaks that did not exist during primary production. Therefore, the gas storage operator must fully understand the reservoir and the issues that could exist should gas storage activity be stretched to the limits.

As part of evaluating and shortlisting the most suitable candidate reservoirs, proponents need to complete rigorous technical scrutiny. Detailed reservoir and surface network modelling must be used to better understand and predict reservoir behaviour.

Modelling is critical for assessing how a reservoir will react to gas storage processes. It helps to determine which reservoirs are ideal candidates for gas storage and can also guide the management of the reservoir. The model will improve as new data becomes available. Before injection begins there will be many unknowns. However, as the data accumulates the model becomes stronger and its predictive power grows. Regular monitoring and updates to the models are critical as the reservoir’s reactions will change over time.

When coupled with a surface network model, the reservoir model will also provide vital information to guide the development and use of associated infrastructure. Coupling reservoir and surface models can help optimize the use of existing infrastructure or show where newer technology is required, such as horizontal wells.

Developing and managing a gas storage reservoir is a complex and intensive process. The scope of Mexico’s scheme – a 45Bcf national network of storage facilities – is ambitious, and so is the timeline. But it is achievable. Sound policy and good engagement with the private sector can deliver this objective.

This gas storage strategy is an initiative of national importance that will boost the country’s energy security and economic development. It has created a lot of excitement in the gas industry – not just in Mexico but across North America.

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Jim Chisholm is Sproule’s Vice President, Latin America.

Jim leads Sproule's strategic direction in the Latin America region and is focused on driving top-line growth for the organization. He has extensive experience in the estimation of reserves and economics for oil and gas properties, acquisitions and divestitures, preparation of regulatory submissions, and evaluations of oil and gas companies.