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

By Sergio Beristain Souza

When you hear talk of natural gas in the media, they only speak partially on the topic; some speak only of distribution (consumption), or talk about multiple supply agreements (extraction) while others focus on liquid natural gas (LNG plants), transport of natural gas, or its cost, etc…, but this topic in particular needs to be looked at as a whole, from the time it is extracted from the subsoil until it is consumed in our homes or industries.

As a reference for the reader in general, natural gas is made up of a mixture of hydrocarbons, predominantly methane, and is found in underground deposits; hence its name. Mexico is a country rich in natural gas and we need to be more efficient in the way we extract, process and consume this resource given that it is one of the cleanest and most cost efficient sources of energy.

With the signing of the North American Free Trade Agreement, we hoped that the oil industry and its derivatives would evolve significantly in our country, partially reforming the respective legislation so that we might count on the investment necessary 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.

These legal reforms created an environment of optimism and hope in the industry, which, it was believed, would give impetus to foreign and national investment, bring about greater efficiency in the sector and gradually remove responsibility for these activities from PEMEX’s shoulders. However, almost 10 years have passed since the reforms and the luck of natural gas has not changed as anticipated for a number of different circumstances.

Despite the fact that the construction and laying of gas pipelines entails a declaration of Public Interest for public, social and even private lands 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 “Energy Regulatory Commission”, this labor has been far from easy. National and above all foreign companies that distribute or transport natural gas have encountered an infinite number of hurdles to carrying out their tasks such as denial of construction permits by Municipalities and Delegations; opposition on the part of “residents” to these works; false and biased information spread by certain media and other energy distribution companies; lack of support from authorities in promoting and making people aware of natural gas; manipulation by political parties; etcetera, all of which stemming from a lack of culture in the use of this energy resource, misleading information from the population, as well as a worrying lack of attention and coordination from Federal, State and Municipal authorities to guarantee viability in the development of this sector.

A climate of political uncertainty has led to increasingly heated discussions in the approval process for much needed reforms to the energy sector to promote exploration and extraction of petroleum and natural gas between the federal executive and diverse sectors of the legislature. The political environment has deteriorated to such a degree that the Supreme Court of the Nation has had to rule on Constitutional Disputes between these two powers; disputes that in reality stem from differences in the dogmatic posturing and inflexibility of the two powers. Just as an example, we know that as little as two years ago, the Court ruled by majority vote that the Regulations to the Federal Power Supply Law exceeded its powers by allowing private companies to sell any excess electricity they produce to the Federal Electricity Commission (a significant amount of which is generated by natural gas). As a result, some companies that had obtained permits to produce electricity prior to this dispute now found themselves on uncertain legal ground which made other companies in the sector think twice before participating in projects related to exploration, extraction, distribution and transport of natural gas in our country to such a degree that the Energy Regulatory Commission had to cancel an International Public Bid for the distribution of natural gas in the geographical zone of Veracruz. On the other hand and paradoxically, there has been a growing number of liquid natural gas plants in our country, which evidences a growth in the importation of this resource.

With respect to extraction, there are many and diverse zones yet to be explored; one of them is the immense Burgos basin in the north of the country, which we share geographically with our neighbor to the north. Recently, PEMEX Exploration has entered into public works contracts with recognized national and foreign companies (multiple supply agreements) with the purpose that they carry out search and exploration of natural gas for later extraction, so that PEMEX does not need to divert resources to these tasks. According to our criteria, this scheme is supported by our legislation and is an excellent legal instrument that can be perfected so that PEMEX, the CFE or similar authorities can legally get projects essential for the development of the nation off the ground, which, for reasons of political immaturity on the matter, have not been able to be solved by way of reforms to the law to provide legal and economic certainty to our country and to players whether national or foreign. However, a group of Senators and Representatives of the current legislature have questioned, and even disputed in court on rather adventitious grounds, the annulment of these agreements, and in this way discourage the motives of private investment and technological improvements in the sector. A closer look at this topic reveals that multiple supply agreements are instruments of great legal value conceived by a process of collaboration and maturation of legal forums intimately related to the sector, and what’s more, by a broad knowledge of the regulatory framework and that of the Public Works Law. As I have already indicated, while it can be perfected, we believe that this type of agreement is congruent with the law and behind political interests; we can only push for what is at this time the best way for PEMEX to be able to move forward in these tasks.

It is clear that the problem that presents itself is caught up in a vicious circle; the National Congress refuses to reform PEMEX’s tax regime, which denies this public-sector company the resources it needs to carry out exploration and extraction activities and obliges it to look for alternative solutions to generate additional resources in a world that is becoming more and more globalized and competitive. Entering into multiple service agreements is one way of achieving this, but by doing so it incurs the disapproval and disdain of members of the very same Congress who have even initiated legal proceedings against them, all of which generates a climate of hostility among our political class, and of uncertainty in the population and potential investors both national and foreign who think more and more carefully about investing in this sector.

In relation to liquid natural gas plants (or LNG plants), which incidentally are nothing more than re-gasification plants for the natural gas we import, an environment favorable to exploration and extraction of the natural gas reserves we possess in the heart of our soil is lacking. Projects for re-gasification plants have also suffered the misfortune of local and federal political interests, such as the projects in Baja California, or the project that is ready to go ahead in Lazaro Cardenas whose future is uncertain as a result of differences between PEMEX and the CFE. We hope that in this area development will be less complex; at least the CFE has announced an enthusiastic program for the growth of re-gasification plants, which would save millions of dollars for the electricity industry.

Storage of natural gas is another bottle neck in the industry; there are national and foreign companies with a number of projects that would alleviate and off set serious complications of lack of infrastructure and risk as a result of the absence of natural gas in the areas of transport and distribution. The Energy Regulatory Commission is not oblivious to this circumstance, but considering it lacks the budget to carry out even its essential regulatory duties, it can only observe anxiously the constant problem of storage. The main obstacle that the storage and transport of natural gas must face is financing given that few project turn out to be financially viable. However complex it might be, one solution may lie in integrating the national natural gas network in a system of contributions and support that are sustained amongst the diverse natural gas processes, such as extraction, processing, storage, transport, distribution and consumption.

We need to start accepting the idea that natural gas means progress and economic well-being for our country, which is rich in this resource. Until our federal and local politicians decide to combine their efforts into a single direction on this important topic, we will continue to work in an environment without any clear rules, importing natural gas from other countries and failing to use this natural resource to every Mexican’s advantage, because after all, there is no forgetting that the natural gas reserves in our country are extraordinary and proven.

EL MUNDO DEL PETROLEO | Año 2 Tomo 8 Febrero – Marzo 2005 | Pag. 72-73