The Natural Gas Industry in Mexico

March 20, 2020

Strong demand is fueling the natural gas industry in Mexico with consumption of natural gas more than doubling between 1998 and 2017

The overall increase in electricity use in Mexico has been another factor, and that growth is predicted to continue. S&P Global reports that Mexican consumers will demand an additional 70 GW of capacity over the next 10 to 15 years. Finally, natural gas produces less pollution than coal or oil. Thus far, gas has benefited from the shift to cleaner power sources in Mexico.

Costly Dependence on Imports Heightens Risks

While Mexico is consuming more natural gas, domestic production declined after 2010. The result is an increasing reliance on imports, mostly from the United States. According to SENER, Mexico’s natural gas imports went from just 4% of consumption in 1998 to more than 60% by 2017. Increasingly nationalistic rhetoric from politicians on both sides of the border also presents a looming threat to Mexico’s natural gas imports from the United States. However, other considerations may be more pressing.

U.S. exports are starting to shift toward liquefied natural gas. Liquefied natural gas can be shipped to countries all over the world, including rapidly growing markets in Asia. That could substantially raise the price of natural gas in the long term. For now, much of Mexico can still import natural gas more economically via pipelines from the United States.

The Potential for Pipelines is Strong

New pipelines have enormous potential to support increased natural gas production in Mexico and also reduce the costs of imports. Although there is already an impressive pipeline infrastructure for transporting natural gas from the U.S. into Mexico, it does not reach the entire country. Most of the less expensive piped gas goes only to the northern states of Mexico, in part to provide power for factories. Much of central Mexico has become increasingly dependent on costly liquefied natural gas delivered to the Manzanillo terminal.

The potential of pipelines was threatened by delays between 2018 and 2019, but many of these issues faded by late 2019. There were several slowdowns as firms adapted to political changes, and work on five pipelines was suspended. Fortunately, this situation noticeably improved. TC Energía began operation of the Sur de Texas pipeline in September 2019. TC also resumed building the previously suspended Villa de Reyes pipeline. That pipeline is now expected to be in operation by the end of 2020.

Processing Constraints Could Create Bottlenecks

Mexico also desperately needs more natural gas processing facilities. With the decline of domestic natural gas production in Mexico after 2010, many processing plants have suffered setbacks. During 2018, electrical outages repeatedly interrupted operations at the Neuvo Pemex facility. That is a significant issue because Mexico depends so heavily on natural gas for electricity, and facilities like Neuvo Pemex play such a large part in processing it.

The Neuvo Pemex, Ciudad Pemex, and Cactus facilities accounted for over 70% of Mexico’s natural gas processing in 2019. We believe that the natural gas processing capabilities of Pemex should be strengthened.

Prospects for Production

Natural gas production must increase in Mexico to sustain growing demand. Some of the necessary work is already taking place. About half of Mexico’s electrical grid capacity additions between 2016 and 2018 came from natural gas. Furthermore, SENER forecasts that Mexican natural gas production will nearly double by 2030. However, these production increases will not happen by themselves.

Mexico Energy Partners supports companies with research, market studies, legal advisory, and technical consulting in the natural gas industry. Contact us today.

Kijana Mack, Director