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 Resolution 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:
Note: No available data for August 2018. | Source: CENAGAS bulletin.
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:
- Modify gas reception and deliveries, previous notice to the users.
- Sell and buy gas at competitive prices and transparent conditions.
- Contract additional compression capacity, storage, park, loan and transport capacity.
- 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.
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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.
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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.
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CENAGAS estimates that these OBR will be well received by the market as they are accompanied by information and a measurement improvement program.
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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.
