Changes to the Operating Balance Rules  at CENAGAS

1. Context

On July 19th, 2019, the Energy Regulation Commission (CRE) authorized the National Center of Natural  Gas Control (CENAGAS) extraordinary changes to the Operating Balance Rules (OBR) through Resolu-  tion RES/840/2019. The OBR will be in force as soon as CENAGAS starts publishing some new information  on its bulletin board and until February 19th, 2020, when an improved metering system will have to be in  place, complying with CRE’s Metering General Guidelines. 

CENAGAS requested these modifications due to an alleged lack of operational discipline of many users and to  change charges and penalizations already approved. CENAGAS emphasized that it has incurred in costs to  maintain the system operational, like buying LNG at a premium over continental gas, without mechanisms to  recover such expenses. For example, the following graph shows the LNG flows on the last 30 months:

 


2. Modifications

Through these temporary OBR, CENAGAS effectively transfers the responsibilities and costs of balancing the  system to the users by implementing conventional penalties if they cause an imbalance or fail to follow  programming instructions. In order to achieve those objectives, these new rules will allow CENAGAS to:

  1. Modify gas reception and deliveries, previous notice to the users.
  2. Sell and buy gas at competitive prices and transparent conditions.
  3. Contract additional compression capacity, storage, park, loan and transport capacity.
  4. Coordinate actions with other market agents (for instance: CFE, Pemex and CENACE).

Payments in kind are limited to fewer situations, as CENAGAS has proper conditions to enforce cash  payments to cover for LNG expenses. For example, CENAGAS will penalize imbalanced users if it buys or  sells gas directly, or if owed gas is not replenished. Pending payments for cash liquidations and relapses in  imbalance could even cause service suspension, contract termination or, at least, onerous penalties.

As a result, users might have to pay higher costs for using natural gas on SISTRANGAS, especially  those affected by the drop of domestic gas production or with unattended demand. Even a disciplined user  would need to pay a reborn “Balance Adjustment” if CENAGAS registers operational losses (conversely,  earnings will be distributed to the disciplined users).

Moreover, CENAGAS might impose unfair conventional penalties. Users should be shrewd in analyzing the  causes for every imbalance, to identify which of them are attributable to CENAGAS and therefore, avoid the  imposing of unfair conventional penalties.





Recommendations

Users and marketeers should closely analyze  the new OBR to adjust their behavior and  avoid any surprises, as penalties can be heavy  or even cause to lose access to gas.

The best way to avoid conventional penalties  for operating imbalances is to closely  analyze the information that CENAGAS  will publish in its electronic bulletin. In the  presence of interventions, each user should  identify windows to compensate for  possible imbalances and follow  programming instructions.


Users shall be prepared to identify mechanisms  to prevent excess consumption.


The timeframe for new metering  infrastructure is challenging and each user  should pressure CENAGAS for timely  investments. Information  analysis–understanding the Balancing  Parameters that ought to be published

will be key to improve performance  of the businesses.



Opportunities


Market participants can take advantage of this  opportunity to request assistance from  CENAGAS in complying with the scheduled  timeframes established in the Terms and  Conditions, particularly on the timely  publication of the programmed quantities for  each flow day. This information is not yet  available until several days after the flow is  finished.


CENAGAS estimates that these OBR will be  well received by the market as they are  accompanied by information and a  measurement improvement program.


It is recommendable to maintain a healthy and  close relationship with CENAGAS’ Manager, in  order to find effective communication  mechanisms that help mitigate risks, even as  the complementary offer reaches the users.