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    Rises in natural gas prices will make CFE require more subsidies, experts predict


    September 22, 2021 - CE Noticias Financieras

     

      Winter could cause the reference price of natural gas to reach a double-digit figure, so the Government of Mexico would have to allocate more resources to subsidize electricity generated by the Federal Electricity Commission (CFE) with the help of this input, experts agreed.

      The reference price of natural gas has hovered around $5 dollars per million BTU in recent days.

      However, Eduardo Prud'homme, energy sector specialist, said the spot price of natural gas could be at levels close to $10 dollars during the coming winter.

      "There is a probability that reaches double digits if political problems persist, if a pipeline fails or there are storage problems, also if a larger amount than normal is extracted, that makes the market very nervous and drives the price up," he said.

      Given this scenario, Prud'homme said that the budget for electricity subsidy may not be enough, since it was not in the budget equation that the price of natural gas would be so high.

      In this regard, Rosanety Barrios Beltran, a specialist in the energy sector, said that during 2020 the budget of the Ministry of Finance and Public Credit (SHCP) for electricity subsidy was 70 billion pesos, and for this year was 73 billion pesos, but probably should be adjusted upward.

      "The subsidy will have to go up, but let's reflect that those more than 73 billion pesos would be much more useful if they were used in some other way, such as in transmission investments in the same electricity sector, but that will not happen because there is no intention of allowing the participation of more renewable energies and even less if they are private," he said.

      He pointed out that prices above five dollars are already considered a serious problem, as they make the country's electricity generation more expensive.

      According to the Public Finance and Public Debt report prepared monthly by the Treasury, during the first half of 2021 the government already delivered 70,279 million pesos to CFE in subsidies and transfers from the Federal Government, which meant an increase of 36.5 percent compared to the same period last year.

      The electricity sector is the main demand for natural gas, with 50.3 percent of national demand, mainly due to the bet on combined cycle power plants.

      "They are considered the best option given the lower operating costs and a lower environmental impact, factors that have driven the increase in their consumption," it can be read in the statistical pronontoscope published by the Ministry of Energy.

      In 2018, generation through combined cycle accounted for 51 percent of gross electricity generation, a share that has remained relatively stable since 2014.

      "The reduced availability of natural gas in the national territory may have a high impact on electricity costs because it may cause some generation plants to have to use more expensive fuels such as LNG or diesel," the CFE stated in its 2021-2025 Business Plan.

      Prud'homme explained that there have been several factors that caused the rise in natural gas, such as an increase in demand for natural gas in the U.S. during the summer 'above expectations. This caused that storage inventories were affected.

      "Last year, at this time there were 3,600 billion cubic feet (mmpcd) of storage, now we are at 3,000, this difference is equivalent to the demand of about five or six days, the balance will be very tight in the coming months," he said.

      He stressed that prices of $4 dollars will not be seen again for a while, since there would need to be a not so severe winter, a normalized consumption, good storage and that there are no problems with the pipelines, "many things would have to happen for the waters to calm down and I do not think it will happen soon," he said.

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