Proximity opportunity between Mexico and the United States leading to energy projects south of the border

The war in Ukraine coupled with the rebalancing of the supply chain caused by the coronavirus pandemic is creating unique economic opportunities in Mexico, according to energy industry professionals who spoke on Wednesday at the Mexico Gas Summit in San Antonio, TX.

“This is a historic opportunity,” said Francisco Acuña, chairman of the Sonora State Sustainability Committee. But, he said, “this openness isn’t going to last forever.” The opportunity, according to Acuña, was within the next year and a half.

The executive said projects in Sonora were being developed and natural gas was key to competitiveness. Sonora is home to the planned liquefaction project by Mexico Pacific Ltd. (MPL) considered for Puerto Libertad. “All regions of Mexico that have developed economically have access to natural gas,” he said.

Bank of America Merrill Lynch commodity director Alfonso Martín said natural gas remains the cheapest energy molecule in the world, even at $9.00/MMBtu. This “creates a lot of opportunities” for Mexico. In Monterrey, Nuevo Leon, “everyone is growing, everyone is building,” he said.

He called manufacturing “the royal engine of growth in Mexico.” Manufacturing is energy-intensive and takes advantage of natural gas across the border. He cited the tightening of industries in Europe with natural gas prices several times higher than in Mexico.

Vulnerable to supply shocks

Participants expressed the need to develop Mexico’s natural gas resources, particularly its unconventional fields in the north. Mexico imports up to 90% of the natural gas it consumes.

Energy Commission of Tamaulipas, Fernanda Alemán Alcocer, director of projects, said that 67% of the gas imported into Mexico transits through his state. She said natural gas generates jobs and “there have been no negative consequences from the development of natural gas infrastructure – on the contrary”.

But, she said, last year’s winter storm in Uri “exposed our vulnerability”. Mexico “consumes gas that we have under our soil…Natural gas is a matter of national security, and we have to pay attention to it”.

Alemán cited the unconventional Round 3.3 which was abandoned by the government of Andrés Manuel López Obrador.

The head of the Tamaulipas Energy Commission, Anotonieta Gómez, said, “Natural gas allows us to grow. We have seen economic development in the state. We are convinced that natural gas is the fuel of the energy transition.

Fuel of the future

Gómez said demand for natural gas is growing at around 3% every year, and “the concern is that there is no policy to start new cycles. We have to get back to it. We also need natural gas for hydrogen.

Gómez cited plans by the Comisión Federal de Electricidad (CFE) to build six combined-cycle power plants with a capacity of 4 GW. “Along with the export plants, we need natural gas. It is a need for the country.

Tamaulipas contains most of the Burgos Basin, Mexico’s most prolific natural gas production basin unrelated to oil production, i.e. non-associated gas.

The Burgos is the southern extension of the Western Gulf basin in Texas, which encompasses the Eagle Ford shales, the US Energy Information Administration (EIA) said in 2017. “High levels of production” in the Eagle Ford “could indicate similar production levels in the Burgos Basin region.

During the Uri winter storm, Gómez said: “Imagine the helplessness we felt, we have one of the greatest resources of natural gas, and we couldn’t get it.”

Duncan Wood, of the Wilson Center think tank in Washington DC, said that despite institutional deterioration, the energy sector would “survive” the current Mexican administration. He said Mexico’s long-term outlook, demographics, economy and supply chain advantages always put him ahead of the competition.

“Now it’s more about ensuring a steady supply of oil and gas to global markets, but we’re not there yet,” Wood said. He said, “The focus on friendly and safe growers will only grow after Ukraine. Mexico has a possibility there.

Wood said the fruits of energy reform are reflected in increased private sector output. But, he said, from the perspective of a post-López Obrador world, “the difficult task will be the reconstruction of institutions.”

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