The effects of Mexico’s energy reform are in full swing, and the growth of the fuel import market in the country is undeniable. This opportunity opens the door for investment in the development and growth of the storage and distribution industry in the energy sector, and this opportunity brings the need for regulations.
Since the energy reform came into effect, the sector has embarked on a major transformation. Historically in Mexico, the PEMEX brand held 100 percent of gasoline sales. Today, for every three PEMEX gas stations there is one that no longer waves that flag. In other words, 25 percent of gas stations in Mexico no longer distribute the PEMEX brand. The gasoline sales market in Mexico has increased with the presence of nearly 40 new brands.
Since then, the growth of the Mexican market has accelerated significantly. When the reform initially came into effect, the Mexican market, even at gas stations with brands other than PEMEX, sold the same gasoline that PEMEX supplied. Today, this is beginning to change – 16 percent of imported gasoline comes from private importers (Source: SENER, Secretaria de Energia).
One of the primary contributing factors that significantly boosted the import of fuels was the shortage of gasoline at the beginning of 2019. The Mexican government urged permit holders to help boost the supply of gasoline. This initiative has generated growth this year of approximately 126 percent in private gasoline imports (Source: SENER, Secretaria de Energia).
For pipeline operators, such growth represents a good business opportunity: generating growth in the value chain of imports, distribution and storage.
Natural gas is an essential fuel for industry and for the production of low-cost electricity. States that have greater access to gas pipelines are also more developed. The recent commissioning of the Texas-Tuxpan Gas Pipeline, which began operation in August 2019, ensures 40 percent more imported natural gas for the Mexican market. Unlike the vulnerability of crude oil and gasoline prices, which each have one international price, natural gas has regional prices. The price in the Mexican and North American market is around 2 USD/MMBtu, as opposed to Europe, where it is 7 to 8 USD/MMBtu, or Asia, where the price is around 12 USD/MMBtu (Source: CRE, Comisión reguladora de Energía). The Mexican region has the cheapest natural gas in the world, and from August 17, 2019, it has had an additional 2,400 MMSCFD, helping the availability of electricity and reducing price pressures.
These energy sector reforms make Mexico an attractive country for investing, with major opportunities for companies in the energy sector.
With this opportunity comes the need for regulation. For the storage and distribution market, the Safety, Energy and Environment Agency (ASEA) is the governing body that regulates and supervises industrial safety, operational safety and environmental protection with respect to the activities of the hydrocarbons sector, guaranteeing the safety of people and the integrity of the environment.
In order to comply with this principle, ASEA has, among other regulations, three Mexican Official Standards that bring together the best international practices for design, pre-commissioning, operation, maintenance, closure, dismantling, integrity management, and administration of industrial safety, operational safety and environmental protection. Thanks to this regulatory framework, ASEA regulates and fills a legal gap in terms of the technical specifications and standards aimed at maintaining the industrial safety, operational safety and environmental protection of the pipelines that collect, transport and distribute hydrocarbons, petroleum products and petrochemicals.
Published on March 8, 2018, NOM-007-ASEA-2016 (NOM-007) establishes the minimum requirements and technical specifications that must be met by regulated parties. This regulation provides operators with technical clarity regarding the minimum requirements to be considered for product transport by pipeline.
ASEA developed this regulatory framework based on international best practices for the transport of hydrocarbon and the work of an interdisciplinary team of experts in the field. Such measures promote proper risk management at the various stages in the service life of a pipeline that transports natural gas, ethane and gas associated with coal.
Likewise, the NOM takes into consideration measures to cover the physical safety of operating personnel. Pre-design, pre-commissioning, and operation and maintenance reports are considered, which means that all pipeline projects intended for the transport of hydrocarbons will be regulated – from their planning stage to their respective dismantling.
One of the main impacts of NOM-007 for operators of pipeline transport systems is the Class Location concept, which is a mechanism to segment the pipeline into units of different consequence along the pipeline based on the number of structures intended for human occupancy within a defined proximity to the pipeline. These units of consequence are then assigned a “class” based on the number of structures intended for human occupancy within each respective unit. A pipeline, or pipeline segment, would be classified into different “class location units” from beginning to end. For a long time in Mexico, units were identified as one of four Class Locations. Currently, modifications have been made to this international practice, creating five Class Locations and placing more emphasis on an area’s population.
Many paradigms still need to be improved among operators, as does the way in which “class location units” are established in Mexico. One of the practices commonly observed with operators in Mexico is the way in which Class Locations are determined, a practice that took hold among national operators reluctant to change.
A detailed review and explanation are needed on how the determination of Class Locations is implemented internationally, with a focus on the accurate establishment of class units and, subsequently, the appropriate assignment of “class.” This would be very useful not only for national regulators but also for the protection of the population and the environment, since the spirit of this regulation aims to ensure that any possible impact on the population and the environment is taken into account in an appropriate manner.
The main difference in the way the determination of class location is implemented in Mexico lies in how the unit is established for review and in the count of structures for human occupancy. Traditionally, the units for a class location are areas of one mile (1,600 meters) in length, which slides from the beginning of the pipeline, or pipeline segment, to the end, evaluating the sliding miles for changes in class. In Mexico, the mile for determining the class for each mile evaluated is applied successively; that is, one mile is established in front of another mile until the length of the transport system is completed. Then, each mile takes the most critical class location category. This way of determining the Class Location does not properly analyze the affected area of consequence.
The figure below shows how one mile followed by another is structured.
The population density count is determined per square kilometer along the path of the transport system.
In accordance with paragraph g) of subsection 7.5 of NOM-007 – Class Locations:
The zone must be divided into continuous unit areas to determine classification by Class Location, which comprises a section 1,600 meters long on the pipeline route and 200 meters on each side of the pipeline axis. The unit areas must include the maximum number of buildings intended for human occupation in accordance with the Class Location.
With this structure, the criterion requires the selection of the most severe Class Location based on the 1,600-meter section.
Selecting Class Locations in this way results in leaving vulnerable areas at risk in the event of an incident.
As can be seen in the figure above, the mile continues to be defined as one mile followed by another and taking into consideration the worst condition (false conservatism) of the Class in the square kilometer, leaving a significant area of high impact out of consideration, as there is no realistic transition between one class and another.
Conversely, as shown in the figure below, the way in which the determination of Class Locations is done internationally considers a sliding section of 1,600 meters (1 mile), where the population count is performed as the mile slides, ensuring that the number of buildings or the population remains realistically considered throughout the unit of measurement.
This system ensures that the mile fully covers an overlap between one Class and another Class by counting the buildings and population and defining a change between one Class Location and another only when the change of status is ensured along the mile.
Figure 3: International Class Location determination considers a sliding section, ensuring status changes along the mile.
The differences between the two ways of determining Class Locations are clear, as shown in the figure below:
The importance of the determination of the Class Locations is directly related to the operating conditions of the transport systems. Therefore, an incorrect determination of Class Location produces an incorrect operating condition. Figure 5 shows the result of a case study in which the differences between one methodology and another are identified:
In a 20-kilometer analysis, the sliding mile Class 1 Location results in 1.3 kilometers, while in the fixed mile it results in 4.8 kilometers. The sliding mile Class 2 Location results in 6.6 kilometers, while it results in 6.4 kilometers in the fixed mile. However, an important difference is observed in the case of Class 3, where, through a proper analysis, the sliding mile results in 12 kilometers versus 8.8 kilometers using the fixed mile analysis. This leaves 3.2 kilometers (16 percent) evaluated incorrectly in this case.
Another important regulation administered by ASEA is NOM-009-ASEA-2017 (NOM-009), which regulates the integrity management of pipelines for the collection, transportation and distribution of hydrocarbons, petroleum products and petrochemicals. As part of transitioning from one regulatory standard to another, ASEA issued “Transitional Provisions,” which must be followed.
The Official Mexican Standard, in accordance with its First Transitional Provision, came into effect 180 calendar days after its publication in the Official Journal of the Federation, i.e. July 24, 2019. It stipulates that the regulated party is required to engage and have their program verified for compliance by the Verification Unit (VU). VUs are non-governmental companies that will serve as an enforcement body, ensuring compliance with pipeline regulations in Mexico. This form of auditing and verifying program compliance is carried over from the previous regulatory model. NOM-009 has a staggered approach to compliance, with its first milestone for compliance being Chapter 4 and 8. During the period from July 24, 2019, to July 24, 2020, operators will be required to demonstrate compliance to a VU specifically for Chapters 4 and 8 or NOM-009.
In order to comply with the Third Transitional Provision, in accordance with Chapter 4, regulators must have the tools or computer systems to monitor the activities of the integrity management program that provide the integrity status of the pipeline, segment or section through performance indicators of the integrity management process. Such information must be kept up to date and available for review when requested by the agency.
The transportation of hydrocarbons, petroleum products and petrochemicals through pipelines is a strategic activity for the hydrocarbons sector. Therefore, it is essential to have a program to manage the integrity of this type of infrastructure that provides information on its physical state.
The standard will allow the agency to collect, review and integrate the analysis of information into a database to improve risk assessment.
Ideally, events that may have an impact on people, the environment or the facilities of the hydrocarbons sector will be determined during the risk assessment process. The process established in NOM-009 will determine the priority in dealing with pipelines whose integrity presents high levels of risk.
It is necessary to ensure that the spirit of standard NOM-009 – ensuring the safe operation of transportation systems – is not neglected, in the same way as described in the ASME and API standards or DOT (CFR) regulations, which through structured and organized activities assess the integrity status of the asset and not just the process.
International operators and even operators such as PEMEX or IENOVA have implemented technological platforms that enable them to comply in an orderly, organized, clear and precise way with the assessment of risk and integrity status of transport systems.
Risk assessment and identification of applicable hazards are factors that will be the basis for the inspection and analysis of the integrity of the more than 68,000 kilometers of land and marine pipelines that exist throughout Mexico.
Not only is a tool required for monitoring and evaluating the process, a technological platform is also needed that allows them to carry out a true integrity analysis and monitor its status. This type of solution has even given rise to other solutions for data management in technological platforms, where information can be used suitably for analysis. The need for such data-based solutions platforms drives the need for some consensus in how to organize the data, therefore making “data models” an important element. Such is the case in the PODS (Pipeline Open Data Standard) and in the UPDM (Utility and Pipeline Data Model).
The aim is to have relative data organized and structured to enable on-demand rendering of information to make informed decisions. Industry globally has learned that integrity programs thrive with targeted information on the pipeline transportation system. Having an ability to build up the database and enable an integrity engineering process of analysis and evaluation connected to the database of information on the same platform allows for seamless processing. In addition, it is important to comment on the Fourth Transitional Provision, which establishes that regulated parties (operators) shall have the following deadlines to comply with Chapter 6 and 7:
- With high-priority response, by July 24, 2022
- With medium-priority response, by July 24, 2024
At this point, even though it is not specified, it is understood that by July 24, 2022, the entire pipeline network should have a risk assessment completed and analyzed for prioritization of efforts based on risk.
One interpretation of the requirements published in NOM-009 is that gaps in the different chapters will cause the regulated parties (operators) to interpret the requirements differently. Given the enormous human and financial resources that interpretation and misinterpretation can bring, cautions and proactive communication with stakeholders is important.