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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The global power industry will be watching Mexico and holding its collective breath until April, when that country's Congress is required to vote on a series of electric market reforms proposed last December by President Andrés Manuel López Obrador (known as AMLO). The climate change community also will be paying attention to that vote, as the Mexican president wants to have natural gas supplant renewables as the largest source of new electric generation. Passing the change advocated by AMLO would lock in decades of increased greenhouse gas emissions from Mexico's power sector.
U.S. natural gas producers and pipeline companies also will be following legislative activities south of the border because Mexico imports about 72% of its natural gas from the U.S. Passage of the measures sought by AMLO would significantly increase the demand for imported gas, as Mexico's national oil and gas producer, Pemex, has been focusing on oil at the expense of natural gas.
Adrian Duhalt, a post-doctoral fellow in energy studies at Rice University's James A. Baker III Institute for Public Policy (Houston, Texas), has been following the Mexican energy issue for years. In a wide-ranging interview with Industrial Info Resources, he detailed the significance of AMLO's planned changes to that country's electricity sector, and how they connect with other parts of Mexico's energy ecosystem.
Mexico began opening its long-sheltered energy industry to overseas investment several decades ago, Duhalt said. Since then, Iberdrola S.A. (Bilbao, Spain) has become the nation's second-largest electricity producer, trailing only the CFE, Mexico's national electric company.
"The AMLO government wants to make changes to Mexico's constitution that would cement CFE's position as the nation's No. 1 generator," he said. "And that could cause the termination of some existing contracts signed with private overseas generators." If the measures pass, he said he didn't foresee outright expropriation of foreign-owned assets, but rather "indirect" seizure of those assets if the government compels companies to renegotiate their contracts under duress.
"AMLO is changing the rules of the game to favor the home team," Duhalt said. He said the current Mexican president has "less respect for the rule of law" than his predecessors. "If this measure passes, foreign companies will think twice before bidding on Mexican power projects," he predicted.
The Mexican Congress has been taking testimony on the proposed changes since mid-January, and they likely will be taking testimony from experts until mid-February, he said. As a proposed change to the country's constitution, AMLO's measures require a 66% majority in the Congress to be enacted. Duhalt said AMLO doesn't appear to have the requisite number of votes yet.
Approximately 46 gas-fired power generation projects valued at roughly $7.9 billion are under development in Mexico, according to Industrial Info's Global Market Intelligence (GMI) platform. Many of those projects are behind schedule. As always, Industrial Info does not expect all of the planned projects to be constructed. The Mexican states of Yucatan, Mexico and Baja California Del Norte are the three states with the largest dollar-value of gas-fired power projects under development.
Click on the image at right to see the Mexican states with the largest dollar-value of gas-fired power projects under development.
But the number and value of proposed renewable power projects under development in Mexico dwarfs the gas-fired projects. Approximately 185 power generation projects valued at roughly $26.5 billion are scheduled to be built in Mexico, according to IIR's GMI platform. The Mexican states of Yucatan, Coahuila and Baja California Del Norte have the largest dollar value of renewable power projects under development in that country.
Click on the image at right to see the Mexican states with the largest dollar-value of renewable power projects under development.
"Private companies can operate more efficiently than public sector companies," Duhalt said, noting the bloated payrolls of public-sector companies like CFE and Pemex. "Private companies have leaner structures," he said.
The Mexican president's proposal has been criticized by opposition parties in the Mexican Congress and energy experts, but the president has relatively high popularity ratings among citizens. He has promoted the changes as a way to keep electricity prices down.
If the proposed changes pass the Congress, imports of natural gas from the U.S. will increase, he predicted. Current exports of gas through pipelines amount to something more than 5.5 billion cubic feet per day (Bcf/d), but he estimated that's only about half of the cross-border pipeline capacity.
"Pemex has been focused on oil, not natural gas, because oil is more profitable than gas," Duhalt told Industrial Info. "It has abandoned the gas side of the business, and we are seeing the consequence of that."
He estimated the overall Mexican gas market demand is about 7 to 8 Bcf/d, and foreign companies supply about 72% of that demand.
In its January Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) (Washington, D.C.), a branch of the U.S. Department of Energy (DoE), wrote, "Pipeline exports of U.S. natural gas have also increased as more infrastructure has been built to transport natural gas both to and within Mexico and as more natural gas-fired power plants come online in Mexico. Gross U.S. pipeline exports to Mexico and Canada in the forecast average 8.9 Bcf/d in 2022, up 0.4 Bcf/d (5.0%) from 2021, and 9.2 Bcf/d in 2023."
Turning to other aspects of Mexico's energy ecosystem, the Baker Institute post-doc said transportation fuel self-reliance has been more of a rallying cry for the president than upstream activities. Toward that end, Pemex recently completed its purchase of Shell's 50% ownership of the 340,000-barrel-per-day Deer Park Refinery in Houston, which it plans to refine Mexican crude oil and transport that refined product back to Mexico. The country also is way behind plans to build a similarly sized grassroot refinery in Tabasco, originally budgeted at $8 billion. News reports have said that project, originally scheduled to begin operating this year, is billions of dollars over budget and will not begin operating until 2024.
In a related development, the CFE and Sempra Infrastructure, a subsidiary of Sempra (NYSE:SRE) (San Diego, California), recently signed a non-binding memorandum of understanding for the development of proposed projects, including Vista Pacífico LNG, a natural gas liquefaction project in Topolobampo, Sinaloa; a natural gas regasification project in La Paz, Baja California Sur; and the resumption of operations of the Guaymas-El Oro pipeline in Sonora.
"The development of these projects would allow CFE to optimize excess natural gas and pipeline capacity from Texas to Topolobampo in order to increase its natural gas supply to its power plants in Baja California Sur, to advance President Andrés Manuel López Obrador's commitment to supply the state with low-cost electricity and lower-emission fuels, and to promote economic growth and development of the region, with a view toward strengthening CFE's position in global LNG markets," the company said in a January 31 press release.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
U.S. natural gas producers and pipeline companies also will be following legislative activities south of the border because Mexico imports about 72% of its natural gas from the U.S. Passage of the measures sought by AMLO would significantly increase the demand for imported gas, as Mexico's national oil and gas producer, Pemex, has been focusing on oil at the expense of natural gas.
Adrian Duhalt, a post-doctoral fellow in energy studies at Rice University's James A. Baker III Institute for Public Policy (Houston, Texas), has been following the Mexican energy issue for years. In a wide-ranging interview with Industrial Info Resources, he detailed the significance of AMLO's planned changes to that country's electricity sector, and how they connect with other parts of Mexico's energy ecosystem.
Mexico began opening its long-sheltered energy industry to overseas investment several decades ago, Duhalt said. Since then, Iberdrola S.A. (Bilbao, Spain) has become the nation's second-largest electricity producer, trailing only the CFE, Mexico's national electric company.
"The AMLO government wants to make changes to Mexico's constitution that would cement CFE's position as the nation's No. 1 generator," he said. "And that could cause the termination of some existing contracts signed with private overseas generators." If the measures pass, he said he didn't foresee outright expropriation of foreign-owned assets, but rather "indirect" seizure of those assets if the government compels companies to renegotiate their contracts under duress.
"AMLO is changing the rules of the game to favor the home team," Duhalt said. He said the current Mexican president has "less respect for the rule of law" than his predecessors. "If this measure passes, foreign companies will think twice before bidding on Mexican power projects," he predicted.
The Mexican Congress has been taking testimony on the proposed changes since mid-January, and they likely will be taking testimony from experts until mid-February, he said. As a proposed change to the country's constitution, AMLO's measures require a 66% majority in the Congress to be enacted. Duhalt said AMLO doesn't appear to have the requisite number of votes yet.
Approximately 46 gas-fired power generation projects valued at roughly $7.9 billion are under development in Mexico, according to Industrial Info's Global Market Intelligence (GMI) platform. Many of those projects are behind schedule. As always, Industrial Info does not expect all of the planned projects to be constructed. The Mexican states of Yucatan, Mexico and Baja California Del Norte are the three states with the largest dollar-value of gas-fired power projects under development.
Click on the image at right to see the Mexican states with the largest dollar-value of gas-fired power projects under development.But the number and value of proposed renewable power projects under development in Mexico dwarfs the gas-fired projects. Approximately 185 power generation projects valued at roughly $26.5 billion are scheduled to be built in Mexico, according to IIR's GMI platform. The Mexican states of Yucatan, Coahuila and Baja California Del Norte have the largest dollar value of renewable power projects under development in that country.
Click on the image at right to see the Mexican states with the largest dollar-value of renewable power projects under development. "Private companies can operate more efficiently than public sector companies," Duhalt said, noting the bloated payrolls of public-sector companies like CFE and Pemex. "Private companies have leaner structures," he said.
The Mexican president's proposal has been criticized by opposition parties in the Mexican Congress and energy experts, but the president has relatively high popularity ratings among citizens. He has promoted the changes as a way to keep electricity prices down.
If the proposed changes pass the Congress, imports of natural gas from the U.S. will increase, he predicted. Current exports of gas through pipelines amount to something more than 5.5 billion cubic feet per day (Bcf/d), but he estimated that's only about half of the cross-border pipeline capacity.
"Pemex has been focused on oil, not natural gas, because oil is more profitable than gas," Duhalt told Industrial Info. "It has abandoned the gas side of the business, and we are seeing the consequence of that."
He estimated the overall Mexican gas market demand is about 7 to 8 Bcf/d, and foreign companies supply about 72% of that demand.
In its January Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) (Washington, D.C.), a branch of the U.S. Department of Energy (DoE), wrote, "Pipeline exports of U.S. natural gas have also increased as more infrastructure has been built to transport natural gas both to and within Mexico and as more natural gas-fired power plants come online in Mexico. Gross U.S. pipeline exports to Mexico and Canada in the forecast average 8.9 Bcf/d in 2022, up 0.4 Bcf/d (5.0%) from 2021, and 9.2 Bcf/d in 2023."
Turning to other aspects of Mexico's energy ecosystem, the Baker Institute post-doc said transportation fuel self-reliance has been more of a rallying cry for the president than upstream activities. Toward that end, Pemex recently completed its purchase of Shell's 50% ownership of the 340,000-barrel-per-day Deer Park Refinery in Houston, which it plans to refine Mexican crude oil and transport that refined product back to Mexico. The country also is way behind plans to build a similarly sized grassroot refinery in Tabasco, originally budgeted at $8 billion. News reports have said that project, originally scheduled to begin operating this year, is billions of dollars over budget and will not begin operating until 2024.
In a related development, the CFE and Sempra Infrastructure, a subsidiary of Sempra (NYSE:SRE) (San Diego, California), recently signed a non-binding memorandum of understanding for the development of proposed projects, including Vista Pacífico LNG, a natural gas liquefaction project in Topolobampo, Sinaloa; a natural gas regasification project in La Paz, Baja California Sur; and the resumption of operations of the Guaymas-El Oro pipeline in Sonora.
"The development of these projects would allow CFE to optimize excess natural gas and pipeline capacity from Texas to Topolobampo in order to increase its natural gas supply to its power plants in Baja California Sur, to advance President Andrés Manuel López Obrador's commitment to supply the state with low-cost electricity and lower-emission fuels, and to promote economic growth and development of the region, with a view toward strengthening CFE's position in global LNG markets," the company said in a January 31 press release.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
