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Adopting natural gas could also benefit Mexico’s future development in another way, by reducing its notoriously high energy costs. Electricity rates in the country are an average of 25 percent higher than those in the United States (or 73 percent if subsidies are discounted). The relatively lower cost of combined cycle natural gas power plants could help bring down energy prices, giving a boost to the Mexican economy.
A 2016 study by the International Monetary Fund predicted that, based on plausible reduction in energy prices brought on by the substitution of fuel oil for natural gas, Mexico’s manufacturing output could increase by up to 3.6 percent, or more if Mexican electricity prices converge to those seen in the U.S.
The impact of natural gas power on Mexican energy prices could already be taking effect. Between 2013 and 2015, the price of electricity fell by approximately 13 percent, from $80 per megawatt-hour to $70. The IEA attribute this change largely to the switch to natural gas for fuel generation.
Curbing an addiction
Opening up Mexico’s natural gas reserves to outside investors could also benefit the economy in a different way.
Mexico’s natural gas production has been decline since 2010, and in that time, the county has become highly dependent on gas imports from the southern United States. Much of this has been substituted for imported natural gas from the southern United States, which now supplies more than 50 percent of Mexico’s gas demand (Bloomberg even went as far as to call Mexico’s dependence on U.S. gas an “addiction”).
These imports are vital to the Mexican economy, and have allowed the country to displace some of its fuel oil power generation for natural gas in recent years. But Mexico’s increasing dependence on U.S. imports is also making the country more vulnerable to supply shortages from across the border. For example, a 2017 study in the journal Energy Economics found that in 2013, natural gas shortages in Mexico caused by disruptions to imports from the U.S. caused an appreciable reduction in the growth of Mexico’s GDP.
By helping Mexico to better tap its own natural gas reserves, the new energy reform has the potential to protect the country from supply intermittencies from the United States — which, given the current diplomatic relations between the two countries at the moment, are far from predictable.
AI
