Mexico’s state utility Comisión Federal de Electricidad (CFE) is set to enter international arbitration over a payment dispute with Goldman Sachs Group Inc.
“We are in an international arbitrage process,” a CFE spokesperson told NGI’s Mexico GPI. “CFE thinks it has solid and sufficient arguments to gain a favorable ruling.”
A CFE trading subsidiary reportedly owes Goldman $400 million for natural gas trades that occurred when prices soared in February after a freak winter storm in Texas battered the state’s energy system. Prices at the Houston Ship Channel hub shot up to $400.000/MMBtu on Feb. 16 and remained sharply elevated for days.
CFE wouldn’t be the first company fighting the cost of the natural disaster. The Texas Attorney General’s Office also is investigating the price spikes that occurred in the natural gas and power markets during the freeze.
“February’s fiasco is likely to spawn tens of billions of dollars of lawsuits,” said Andy Weissman, CEO of EBW Analytics Group. “The experience of 20 years ago after the Enron crisis in California suggests litigation could take a decade or more to resolve.”
CFE subsidiary CFE Internacional (CFEi) is one of the major gas players in the United States. Through CFEi and its domestic counterpart CFEnergía, CFE has also supplanted state oil company Petróleos Mexicanos (Pemex) as the dominant player in Mexico´s natural gas market.
During the freeze, power outages in Mexico impacted more than four million clients. But despite a temporary order from Texas Gov. Greg Abbott prohibiting selling outside the state natural gas produced in Texas, Wood Mackenzie data indicated that pipeline flows and liquefied natural gas sendout from the United States to Mexico combined to average about 5.56 Bcf/d in February, down only slightly from 5.7 Bcf/d in January.
In the midst of the crisis, Miguel Reyes, director of CFE’s fuel marketing arm CFEnergía, cited prices as high as $180-200/MMBtu for natural gas from Texas.
Mexican energy expert Gonzalo Monroy told NGI’s Mexico GPI that CFE will likely end up having to pay. CFE officials have already said any costs related to the winter storm will be prorated over 12 months, so it won’t impact rates charged to customers.
President Andrés Manuel López Obrador has consistently said Mexican consumers will not see higher energy prices during his administration. He’s also made it part of his policy to strengthen CFE and a new modified law seeks to give CFE power plants priority in power dispatch over its competition.
Gadex consultant Eduardo Prud’homme told NGI’s Mexico GPI that the transaction was probably reflective of a lack of technical and trading expertise during periods of high volatility. He added that the trading contracts were likely hammered out and signed under former CFEnergía head Guillermo Turrent.
Turrent, who constituted a bridge between U.S. natural gas producers and the nascent Mexican market for much of the previous administration, planned and carried out the gas pipeline tenders criticized by Lopez Obrador as being unfair to the Mexican state.
“The explanation for the February transaction lies in a disdain for the old leadership, a lack of skills in transactions, and a lack of general guidelines and policy on how to react in a situation of extreme volatility,” Prud’homme said.
CFE holds 8.2 Bcf/d of capacity in Mexico and 22 Bcf/d in the United States.
