I see this, along with any other mention of Mexico exporting natural gas (Seven export projects are currently planned), as huge. "Mexico in association with New Fortress will become an exporter of liquefied natural gas for the first time in history." Here is an NGI article discussing how risky this strategy is for Mexico (assuming they continue to not have any natural gas storage). It's a good explanation of how much getting storage goes hand-in-hand with the export strategy. The floating liquefaction plant in Altamira,Tamaulipas is the "sister" project to the Brasil storage field for sure.
Mexico LNG Buildout Poses Risks for Internal Natural Gas Market, Says Energy Policy Expert
BY ADAM WILLIAMS May 26, 2023
Mexico’s decision to construct LNG plants to export natural gas may risk the country’s energy security and may be more costly than beneficial, a research associate at Columbia University’s Center on Global Energy Policy (CGEP) told NGI’s Mexico GPI.
“I think that there is a risk that these projects represent a burden for Mexico’s energy security, in which case, the costs may outweigh the benefits for local businesses, energy companies and the regular Mexican energy consumer,” Diego Rivera Rivota said of the country’s plans to re-export U.S. natural gas to foreign markets.
Of seven export projects now planned, “only two projects are actually under construction at the moment and, in my opinion, it will be very complicated that most of these projects actually move ahead.”
Rivera Rivota’s work at CGEP focuses on energy policy in Latin America, natural gas and liquefied natural gas markets in the developing world. He also researches critical minerals and the geopolitical implications of the energy transition.
Before joining CGEP, Diego was a visiting researcher in Japan at the Asia Pacific Energy Research Centre (APERC). In previous roles, Diego worked at Mexico’s Comisión Federal de Electricidad (CFE), the Permanent Mission of Mexico to the Organisation for Economic Co-operation and Development (OECD), and Mexico’s Office of the President.
Diego holds a bachelor’s degree in International Relations from the Instituto Tecnológico Autónomo de México (ITAM). He also has master’s degree in public policy with a specialization in Energy and the Former Soviet Union region from Sciences Po Paris.
Editor’s Note: The NGI Mexico Gas Price Index, a leading tracker of Mexico’s natural gas market reform, offers the following Q&A column as part of a series of periodic interviews with market experts of natural gas in Mexico. Rivera Rivota is the 103rd expert to participate in the series.
NGI: What are your thoughts on Mexico’s current plans to construct liquefaction plants to export U.S. natural gas to foreign markets?
Rivera Rivota: I think it is important to contextualize why a country like Mexico, which imported 70% of its natural gas supply in 2022, is so willing to export or, in this case, re-export natural gas. I think that some of these LNG projects may become a risk to natural gas supply in Mexico in the medium term for three key reasons.
First, absent a major policy shift, Mexico’s domestic production outlook may remain stagnant, accounting only for a minor share of natural gas demand. Natural gas domestic production has been stagnant since 2017. However, when the auto-consumption in the oil and gas sectors is excluded, domestic gas production accounts for less than 15% of available gas supply in Mexico for power generation, industry and other uses. This has to do with inefficiency in the oil and gas industry, including the fact that about 10% of total natural gas production in Mexico is either flared or vented.
Second, natural gas demand may still increase and is not projected to peak anytime soon. Over the past decade, gas demand has increased every year except for 2020, mostly driven by the power generation sector and to a lesser extent, the industrial sector. The outlook seems, however, rather uncertain, with a moderate upward trend through 2030, especially in the power and industrial sectors. For instance, state-owned utility CFE announced plans to build at least 4 GW of natural gas-fueled power plants, though it remains unclear if and when they will be built. In contrast, while solar and wind project construction has stalled during this administration, that may change under the next administration, as there is a huge potential that remains untapped at competitive prices to meet additional demand in the power sector.
Third, there are two key premises that support the construction of LNG export projects in Mexico. One is the abundance and almost unlimited supply of natural gas in Texas. And the second is the idea that Mexico has more gas than it needs and that there is a need to monetize this “excess natural gas.” Both premises, unfortunately, are inaccurate, lack a long-term perspective and may be a detriment to Mexico’s energy security in the medium term.
To simplify an ongoing and difficult conversation, it cannot be guaranteed that U.S. natural gas production will increase quickly enough to sustain rather resilient U.S. domestic demand. Add to this a robust increase in U.S. LNG exports, at least a moderate rise in U.S. piped exports to Mexico and on top of that, some extra re-export projects in Mexico. On the second premise, while it is true that not all the recently built pipelines that import gas from the U.S. operate at full capacity, the reasons vary from project to project and are complex. For instance, the Sur de Texas-Tuxpan offshore pipeline does not operate at full capacity, and that is partially due to an over five-year construction delay in the Tuxpan-Tula pipeline. Bottlenecks like this one will, hopefully, not be there in the next few years and this “excess natural gas” would then evaporate.
All of this, paired with extremely limited storage capacity in Mexico and heavy reliance on fuel for power generation, may mean a severe test for Mexico’s energy security only a few years down the road.
NGI: Do you think these LNG export plans will provide economic benefit to Mexico in the medium- to long-term?
Rivera Rivota: I think that those benefits may be limited and they will depend on how many and which of these projects actually materialize. About seven projects with a joint capacity of over 47 million tons/year have been proposed. Of those projects, only two projects are actually under construction at the moment and, in my opinion, it will be very complicated that most of these projects actually move ahead. As for the benefits for Mexico, I am afraid the bulk of it will be limited to the taxes and rights paid by these projects to the local, state and the federal government. I am not aware of any project that accounts for an extension or access to natural gas with associated infrastructure to local industry, for instance. However, there is an opportunity for that. Additionally, there may also be job creation and a few other regional spillovers.
That said, as I mentioned, I think that there is a risk that these projects represent a burden for Mexico’s energy security, in which case, the costs may outweigh the benefits for local businesses, energy companies and the regular Mexican energy consumer.
NGI: In your opinion, should Mexico develop a strategy to reduce its dependency on U.S. natural gas imports? Why or why not?
Rivera Rivota: I think history has shown us time and time again that energy security matters and hits low-income households harder, which we saw clearly in Europe last year. Also, a key component of any measure to mitigate risk consists in diversifying both energy sources and suppliers. At the same time, the world is transitioning quickly, albeit not orderly, to a low-carbon economy.
Natural gas is the single most used fuel in Mexico, covering more than 50% of total primary energy needs. Mexico also imports 70% of the natural gas it uses, essentially from a single state, Texas. This has been proven beneficial for Mexico, enjoying some of the lowest and most stable natural gas prices in the world, as well as a reliable and continued source of supply. While relying on energy imports is not a problem per se, having a high dependency on a single source does increase energy security risks. During the February 2021 polar vortex, where havoc and disruption in the natural gas and power supply affected large areas of Texas, the impacts extended beyond the southern border into northeastern Mexico.
Given that, I think a key task for the next administration in Mexico will be to create a strategy to mitigate the impacts of this dependency in the short term and to reduce it in the medium term. There are very clear mitigation actions such as reducing flaring and venting on domestic production, building gas storage capacity and increasing pipeline redundancy. On a second stage, there is more work to do on assessing how to increase domestic gas supply, including conventional sources, carbon capture and storage, biogas production and increasing the role of non-fossil sources in power generation.
NGI: Do you think that Mexico should consider holding new bid rounds, similar to those held in the previous administration, to increase domestic production of oil and natural gas?
Rivera Rivota: This is another area of homework for the next administration. I think whoever is in charge of leading Mexican energy policy should definitely do a thorough assessment of whether there are global conditions for Mexico and the oil and gas industry to do so. Mexico’s oil and gas upstream sector may not have changed much since 2018, but the world has. On the demand side, some conservative projections see global oil demand leveling off by around 2035. On the supply side, there are traditional producers including the Middle East, Former Soviet Union and the United States, but also newcomers like Guyana, which is not only very competitive in a cost-per barrel basis but also in carbon intensity. This may be a challenging environment which would require a lot of work for the Comisión Nacional de Hidrocarburos (CNH) to first assess if a fourth bidding round makes sense, and if so, how to conduct it.
NGI: What do you consider to be the biggest challenges today facing the Mexican energy sector?
Rivera Rivota: There are concerning issues all across the energy sector in Mexico from oil and gas production at the wellhead, to the prices paid to consumers, to the rising pollutant emissions. That said, I find three particularly urgent challenges.
The first one is the need to invest in the expansion of the power transmission grid. Many transmission corridors have been congested for years and as power demand will keep growing, the same infrastructure may not be able to cope with it in a few years. The congestion of transmission lines may produce interruptions of power supply, as well as make electricity more expensive and hinder the integration of additional and cleaner sources of power.
A second challenge has to do with long-term planning on the role that natural gas will play in Mexico through 2050. This must include a detailed assessment of the power sector for each of the demand sectors, and determine how each of them will choose a specific decarbonization pathway. On the supply side, this assessment must be used to guide investment about which infrastructure is to be developed.
Finally, a huge task is how to engage both state-owned companies on their own decarbonization strategies and the role they will have in the country’s energy transition. Any feasible pathway to the clean energy transition for Mexico must have both Petróleos Mexicanos (Pemex) and Comisión Federal de Electricidad (CFE) at the core of it.
NGI: What do you consider to be the biggest opportunities in the Mexican energy sector?
Rivera Rivota: I think a number of opportunities are open to Mexico both with the current geopolitical context and the resource endowment the country has. A huge opportunity lies on the largely untapped solar and wind resources the country has, given Mexico has one of the strongest levels of radiation in the planet and enormous coastal areas with potential for both onshore and offshore wind. These resources are only comparable with a handful of countries like Australia or Chile. I think that materializing this potential is an enormous opportunity for Mexico for a number of reasons including attracting investment, creating jobs and reducing emissions. Moreover, low-carbon electricity will be an enabler to further decarbonize demand sectors like industry, infrastructure and transportation.
However, as we know, not everything can be electrified. I think this opens a range of opportunities for most technologies and fuels to play a role, be it natural gas providing flexibility in the power sector, oil in the petrochemical sector, as well as key technologies with huge potential such as low-carbon hydrogen, and carbon capture and storage. In all of these areas, Mexico is in a prime position to capitalize on the effects of the over $3.6 billion of investment from the implementation of the Inflation Reduction Act, on the southern part of the Rio Grande. The extent to which this opportunity is taken advantage of, and the enormous potential that could materialize, is a decision of energy policy that will need to be made in Mexico City in the years to come.
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