By Aldo David Acevedo P.

On the 11th of May 1995, reforms to the Regulatory Law of Article 27 of the Constitution in the Area of Petroleum were published in the Federal Official Gazette. These reforms empowered the Government to grant permits for distribution, transport and storage of natural gas, as well as to sell this resource first hand.

In parallel with these reforms arose the need to create a regulatory body for this energy sector. It was then that the Energy Regulatory Commission (or CRE) was created as a decentralized body of the Ministry of Energy.

Among the many duties that the CRE currently has, one such is to divide Mexico into strategic geographical zones for the storage, transport and, primarily, distribution of natural gas. Since 1997, the CRE has set about the task of inviting bids for the distribution of natural gas throughout the different geographical zones into which the Nation had been divided, for example: Monterrey, Federal District, La Laguna-Durango, Valle de Cuautitlan-Texcoco, Guadalajara, Toluca, amongst others.

It is worth pointing out that in each of these geographical zones existed a deficient distribution system, mainly in the industrial sector, previously run by PEMEX. These were passed over to the companies that bid when they acquired their Permission to Distribute Certificates for each zone, as in the case with Natural Gas Mexico, Tractebel, Sempra Energy, Metrogas, Mexigas, amongst others.

In addition to the powers we talked about in relation to the Permission to Distribute Certificates, the CRE, based on Chapter VIII of the Natural Gas Regulations, also has the power to grant so-called Self-Supply Permits. These permits give private companies the power to be supplied this resource directly, independent to the company that won the bid in that particular zone provided that their consumption falls within the range established by these regulations. In other words, the sale of natural gas to these Self-Supply Companies is done directly without going through the company that won the bid.

To this effect, Self-Supply Companies may acquire of build a gas pipeline to their plants under the indications of the CRE, which satisfies security obligations placed on them by these Regulations, but without being subject to the obligations that legitimate suppliers must meet.

Natural Gas Self-Supply Companies consist of a group of industries and/or merchants that combine their consumption in order to obtain a self-supply certificate through a commercial company of this nature determined by a specific number of users or consumers (clients), which, as we have already mentioned, must meet a minimum consumption quota to be granted this permit.

The creation of these companies can be justified in light of the lack of supply and exploitation of underground deposits that provide for and maintain an efficient level of natural gas production throughout the Nation, but this must take place only in areas where there is no licensed Distributor. What’s more is that currently, the geographical zones with permits for the distribution of natural gas are insufficient, mainly in those industrial regions with high indices of consumption.

Nevertheless, I consider that this last idea if implemented would only be adequate enough to deal with atypical situations or those geographical zones that have not been studied, analyzed and determined by the CRE, but not just in a manner that meets the formal requirements; they must visit the countryside and meet the applicants since it is disgraceful and destructive that the CRE grants Licenses to these Self-Supply Companies or industrial parks or commercial regions located within a geographical zone whose distribution permit has been legally granted to a distributor as a result of a bidding process governed by a strict regulatory framework with respect to general conditions, tariffs, revisions, warranties and all other necessary elements to be able to operate and maintain a distribution network in one of the zones that was put out to tender by the CRE.

In light of this, from an analysis of the requirements that must be met in order to win a bidding process and be awarded a distribution license and those that a self-supply company must satisfy, I consider it disadvantageous and inequitable that the CRE authorizes the creation of Self-Supply Companies within geographical zones that have already been put out to tender. This is mainly due to the fact that the requirements in the first case are much more complex than in the second.

I believe that the creation of Self-Supply Companies represents a betrayal of the trust placed in the hands of distributors and a trespass on their investment, which is already under threat from the infamous five-year guarantee.

Another aspect that springs to mind and also causes me a feeling of unfairness is that no reliable verification is carried out of the applicants that wish to join a Self-Supply Company, which, more often than not, take advantage of opportunists who dedicate themselves to collecting supposed partners who in reality are really just clients; a simple application letter adhering to the Self-Supply Company is enough to be able to connect to their network, which enormously affects the Licensed Distributor in the geographical zone. There are cases where in the same industrial park there is a distribution network constructed by the Distributor and another built later by a Self-Supply Company, which we have seen in the zone of La Laguna-Durango.

By Sergio Beristain y Adriana Silva Ordaz

On the 16th of last February 2005, the Kyoto Protocol, of which Mexico is a member and is obliged to comply with it, entered into effect to combat climate change.

The main objective of the Protocol is to reduce by 5.2% global greenhouse gas emissions, which are responsible increasing temperatures on Earth. Among these gases we find: carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O); and also industrial gases: hydro fluorocarbons (HFC’S), (PFC’S) and sulfur hexafluoride (SF6). During the first period of the Treaty’s commitment, which extends from 2008 to 2012, we hope to see a reduction in total emissions of these gases; the first three gases to levels present in 1990 and the last three to levels present in 1995.

CO2 is the prime culprit for global warming on Earth, and although it does not trap heat as effectively as other gases of its type, its volume in the atmosphere is quite elevated due to high consumption of petroleum and its derivatives, as the main fuel in industrial processes. It is very simple, if we do not manage to stop the emission of these gases, the first effect would be out of control contamination, modification of the environment, the death of species whose ability to adapt is poor, modification or extinction of life as we know it, etc….

One of the quickest and most efficient solutions to prevent global warming lies in the use of natural gas as a main source of fuel substituting petroleum and its derivatives. This is because combustion of natural gas emits almost 30% less carbon dioxide (CO2) than petroleum and 45 % less than coal. In fact, due to its natural abundance, relatively cheaper price and lower environmental impact, this energy resource should form the base for industrial consumption in our country as it is an affordable and economic solution. Nevertheless, the change to natural gas consumption is definitely not a cure-all given that the problem is very complex.

Moreover, it is worth noting that methane, the main component of natural gas, is in fact a greenhouse gas. However, different studies such as those undertaken by the Environmental Protection Agency (EPA) in the United States and the Gas Research Institute (GRI) in 1997, concluded that increasing the use of natural gas instead of other combustible fossil fuels would reduce the emission of greenhouse gases.

Despite the large and immediate benefits that natural gas represents as a solution to reducing greenhouse gas emissions, not to mention the economic boom the gas market in our country could obtain along with it, PEMEX, transporter and distributor of natural gas, faces serious problems that include a lack of culture; lack of coordination between all levels of authorities; lack of reforms to the legislation; a distribution system that focuses on having a determined number of clients instead of quality of clients and consumption capacity.

These situations serve to apply the breaks to development of the industry, as in the case of a distributor who must focus on getting the largest number of clients without paying much attention to the amount of gas that these might consume, and putting to one side development of a distribution system to satisfy the real big consumer of natural gas: the industrial sector.

It is evident therefore that Congress must rethink the exploitation, processing, storage, distribution, transport and consumption of natural gas in our country as soon as possible even though it is already late, so that the change to natural gas will be quick and sustained.

One easy, quick and economical method of doing this would be to modify the “client coverage commitment” in natural gas distribution systems by reducing paradoxically the number of domestic clients to arrive at a level more in line with reality and increasing the volume of natural gas distribution (capacity) and the number of big clients or large consumers (industries). This will help meet the aim of turning natural gas into the main fuel for the industrial sector, which is the chief producer of CO2 emissions, but without neglecting the residential and commercial sectors that also contribute emissions albeit at a lower level (32%).

Once again we ask ourselves are we OUT OF TIME?, will we be able to COMPLY WITH THE KYOTO PROTOCOL?- will we arrive at our goal of REDUCING GREENHOUSE GASES?, and will our Congress do their job with respect to NATURAL GAS? We do not know, but what we do know is that if these goals are not met we may disappear ourselves. Given the importance of these topics however, we can say with true conviction that we are fed up with the passivity and circus of a Congress, with the news media, and the confrontations between Local and Federal authorities; subsistence and PERSONAL INTEREST would have been more preferable to this COLLECTIVE INTEREST.

EL MUNDO DEL PETROLEO | Año 2 Tomo 10 Junio -Julio 2005 | Pag. 73

-COMPLY WITH THE KYOTO PROTOCOL AND REDUCE GREENHOUSE GASES? AND NATURAL GAS? PERSONAL INTEREST OR COLLECTIVE?

By Sergio Beristain y Adriana Silva Ordaz

On the 16th of last February 2005, the Kyoto Protocol, of which Mexico is a member and is obliged to comply with it, entered into effect to combat climate change.

The main objective of the Protocol is to reduce by 5.2% global greenhouse gas emissions, which are responsible increasing temperatures on Earth. Among these gases we find: carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O); and also industrial gases: hydro fluorocarbons (HFC’S), (PFC’S) and sulfur hexafluoride (SF6). During the first period of the Treaty’s commitment, which extends from 2008 to 2012, we hope to see a reduction in total emissions of these gases; the first three gases to levels present in 1990 and the last three to levels present in 1995.

CO2 is the prime culprit for global warming on Earth, and although it does not trap heat as effectively as other gases of its type, its volume in the atmosphere is quite elevated due to high consumption of petroleum and its derivatives, as the main fuel in industrial processes. It is very simple, if we do not manage to stop the emission of these gases, the first effect would be out of control contamination, modification of the environment, the death of species whose ability to adapt is poor, modification or extinction of life as we know it, etc….

One of the quickest and most efficient solutions to prevent global warming lies in the use of natural gas as a main source of fuel substituting petroleum and its derivatives. This is because combustion of natural gas emits almost 30% less carbon dioxide (CO2) than petroleum and 45 % less than coal. In fact, due to its natural abundance, relatively cheaper price and lower environmental impact, this energy resource should form the base for industrial consumption in our country as it is an affordable and economic solution. Nevertheless, the change to natural gas consumption is definitely not a cure-all given that the problem is very complex.

Moreover, it is worth noting that methane, the main component of natural gas, is in fact a greenhouse gas. However, different studies such as those undertaken by the Environmental Protection Agency (EPA) in the United States and the Gas Research Institute (GRI) in 1997, concluded that increasing the use of natural gas instead of other combustible fossil fuels would reduce the emission of greenhouse gases.

Despite the large and immediate benefits that natural gas represents as a solution to reducing greenhouse gas emissions, not to mention the economic boom the gas market in our country could obtain along with it, PEMEX, transporter and distributor of natural gas, faces serious problems that include a lack of culture; lack of coordination between all levels of authorities; lack of reforms to the legislation; a distribution system that focuses on having a determined number of clients instead of quality of clients and consumption capacity.

These situations serve to apply the breaks to development of the industry, as in the case of a distributor who must focus on getting the largest number of clients without paying much attention to the amount of gas that these might consume, and putting to one side development of a distribution system to satisfy the real big consumer of natural gas: the industrial sector.

It is evident therefore that Congress must rethink the exploitation, processing, storage, distribution, transport and consumption of natural gas in our country as soon as possible even though it is already late, so that the change to natural gas will be quick and sustained.

One easy, quick and economical method of doing this would be to modify the “client coverage commitment” in natural gas distribution systems by reducing paradoxically the number of domestic clients to arrive at a level more in line with reality and increasing the volume of natural gas distribution (capacity) and the number of big clients or large consumers (industries). This will help meet the aim of turning natural gas into the main fuel for the industrial sector, which is the chief producer of CO2 emissions, but without neglecting the residential and commercial sectors that also contribute emissions albeit at a lower level (32%).

Once again we ask ourselves are we OUT OF TIME?, will we be able to COMPLY WITH THE KYOTO PROTOCOL?- will we arrive at our goal of REDUCING GREENHOUSE GASES?, and will our Congress do their job with respect to NATURAL GAS? We do not know, but what we do know is that if these goals are not met we may disappear ourselves. Given the importance of these topics however, we can say with true conviction that we are fed up with the passivity and circus of a Congress, with the news media, and the confrontations between Local and Federal authorities; subsistence and PERSONAL INTEREST would have been more preferable to this COLLECTIVE INTEREST.

EL MUNDO DEL PETROLEO | Año 2 Tomo 10 Junio -Julio 2005 | Pag. 73

By Héctor Beristain Souza

With the signing and ratification of the NORTH AMERICAN FREE TRADE AGREEMENT, the oil industry has evolved significantly in our country; reforming Mexican legislation in order to gain access to the necessary investment to promote production and development in the sector.

Prior to the FREE TRADE AGREEMENT, hydrocarbons, which also cover natural gas, were regulated by way of the Regulatory Law of Article 27 of the Constitution in the Area of Petroleum, dating back to 1958. On the 11th of May 1995, a Decree that amended and added diverse provisions to the Regulatory Law of Article 27 of the Constitution in the Area of Petroleum was published in the Federal Official Gazette. Among these changes were those that provided for the participation of the social and private sectors in the distribution, storage and transport of natural gas, and to those who could construct, operate and own pipelines, installations and equipment according to the terms of technical and regulatory provisions and the corresponding regulations.

We have seen that the government has indeed promoted the natural gas industry, however, a number of regulatory problems have arisen in the development of this policy of change. One of these is the construction of pipelines and their passage across public, social and private lands. In the face of these issues arise questions like: is express authorization necessary from the owners of lands where the pipeline it to be laid? May these people protect themselves legally? Would it be necessary to obtain a right-of-way?, etc.

Foreseeing this situation, Congress was careful when they drafted the November 1995 reforms to the Regulatory Law of Article 27 of the Constitution in the Area of Petroleum, as well as when they drafted the “Energy Regulatory Commission Law” and the “Natural Gas Regulations” in relation to the provisions on laying pipeline for the transportation and distribution of natural gas, which we will analyze in the following.

We will begin by mentioning that the laying of gas pipelines comes under the “Public Interest”.

Something that is of extreme importance with respect to the concept of public interest is that is must meet social interests by attending to a general need. We could say that public interest is the right of the State to satisfy a collective need, one that is of interest to the majority of individuals. Indeed, if we refer to the activities involved in the laying of pipelines to transport and distribute natural gas carried out by private individuals, then they too also meet these characteristics, and as such require verification by a competent authority in order to ensure that service is being provided optimally.

Consequently, the construction and laying of pipe carried out by private distributors would require a declaration of Public Interest according to the terms of paragraph six of article 10 of the “Regulatory Law of Article 27 of the Constitution in the Area of Petroleum”, article 107 of the “Natural Gas Regulations” and article 10 of the “Energy Regulatory Commission Law”. Effectively, these legal provisions clearly include the “Declaration of Public Interest” in that related to the laying of pipelines on public, social and even private land.

The legal analyst Argentino Rafael Bielsa, refers to the Public Interest in the following manner:

“Clarifying that this concept is relative, variable, subject to economic, political and social conditions, lacking in all definition; it must be left to the legislator to determine the Public Interest by way of examining a complex circumstantial question. “1. Resultantly, the legislator was quite clear when setting forth in the applicable provisions the declaration of public interest in reference t o the laying of natural gas pipelines.

The ENERGY REGULATORY COMMISSION, in accordance with the last paragraph of article 10 of their Law, must instigate the legal actions required for to lay pipelines, and therefore is empowered to assist concessionaires before the corresponding authorities, in order to obtain the necessary permits for the construction and laying of pipelines.

In the event that any individual does not agree with the necessity to lay pipeline within the boundaries of their property then they must exhaust any and all legal remedies available to then by law before moving to a Writ of Amparo against the issuance of the pipeline construction license in accordance with section XV of article 73 of the Writ of Amparo Law regulatory of article s 103 and 107 of the Constitution. This remedy must not be presented with any requirements other than those indicated in article 124 of the Writ of Amparo Law, therefore it must also be declared unlawful in accordance with that mentioned in section 11 of the same article given that suspending the construction work would harm the social interest for reasons we commented on regarding the Public Interest, in addition to the fact that they would contravene public interest provisions such as articles 10 paragraph six of the “Regulatory Law of Article 27 of the Constitution in the Area of Petroleum”, article 107 of the “NATURAL GAS REGULATIONS” and article 10 of the “Regulatory Commission Law”.

1 BIELSA, R., Derecho
Administrativo, t. IV, Buenos Aires, Argentina, 1956, en Enciclopedia
Jurídica Omeba, Tomo XXVI, página 598, Editorial Driskill S.A

TECNOGAS Y ELECTRICIDAD, Año 2 Vol. 1 No.11 Marzo-Abril del 2000 Mèxico D.F, Paginas 6-7