Viewpoint: Mexico reliance on US gas to strengthen

Market: Electricity, Natural gas
03/01/22

Mexico's demand for US natural gas grew to a record high in 2021, with imports expected to grow in 2022 despite political uncertainty.

Even as President Andres Manuel Lopez Obrador calls for energy independence, Mexico remains heavily reliant on gas imports for power generation, most of which comes into the country via US pipeline interconnections. Gas imports from the US made up 76pc of Mexico's supplies by the middle of 2021, according to the US Energy Information Administration (EIA), a 36 percentage point increase from the same time in 2015.

US exports by pipeline to Mexico averaged around 6 Bcf/d (170mn m³) in January-August, according to EIA data, 12pc higher than the same eight months in 2020. Pipeline exports reached a peak of 7.4 Bcf/d on 17 June as cooling needs combined with recovering industrial demand from the Covid-19 pandemic.

Mexico's own gas production and LNG imports have fallen as pipelines between the two countries come on line. State-owned Pemex produced an average 4.6 Bcf/d of gas in October, down by 4.1pc from the same time in 2020.Pemex aims to boost production to 5.25 Bcf/d of natural gas by 2022, but it has frequently missed output targets.

Gas demand will likely increase over the next several years as Mexico's electricity needs grow with industrial activity returning to pre-pandemic levels. Though power reform remains a key 2022 concern among the country's business community, the question is whether Mexico's public sector can provide sufficient generation capacity, not whether demand will abate.

Lopez Obrador sent a constitutional electricity reform bill to congress in October that would cap private-sector participation at 46pc. The move would cancel private-sector permits for power generation totaling 40,924MW, or 48pc, of Mexico's installed capacity, essentially making Mexico's state-owned Federal Electricity Commission (CFE) dominant in the power sector.

CFE has announced plans for several power plants, indicating expected demand growth. Though little public information is available, CFE's combined projects would increase gas demand in Mexico by approximately 785mn cf/d, according to Eduardo Prud'homme, co-partner at energy consulting firm Gadex. More than half of the projects have estimated start dates of 2024.

Despite the anticipated demand growth for gas-fired power, private-sector investments for gas and power in Mexico are uncertain following Lopez Obrador's shift away from 2013 energy policy reforms. Lopez Obrador's regulatory and legislative moveshave led to postponements of power and manufacturing projects, potentially stunting growth through the remainder of his term, which is set to end in September 2024.

Increased gas interconnection projects within Mexico remain jammed by environmental grievances, negotiations with state agencies and other political issues. TC Energy has repeatedly postponed the completion of its 886mn cf/d Tula-Villa de Reyes natural gas pipeline to 2022. Delays first stemmed from issues related to the Covid-19 pandemic, followed by contract negotiations with CFE. Other lines have been delayed as indigenous groups opposed the pipeline routes.

But pipelines connecting to Mexico have continued to progress in the US, increasing potential US export capacity. The 2 Bcf/d Whistler pipeline — which came on line in July — added a new connection from the Permian basin of west Texas and New Mexico to the Agua Dulce Hub in southeast Texas. Agua Dulce is a supply point for several pipelines that cross the Texas-Mexico border.

TC Energy plans to expand its North Baja natural gas pipeline system — which serves power generators in southern California and Mexico's Baja Peninsula — with a potential startup in 2022, according to EIA data.

Mexico's gas market conditions have also started to more closely track US market conditions as the US-Mexico pipeline network has expanded, particularly between northern Mexico states and west US hubs. Prices at the Waha hub — the main indicator for the value of Permian gas — averaged $3.28/mmBtu for flow in December 2021, up by 36pc from December 2020. The El Encino index in Chihuahua state, which is supplied by the Permian basin, averaged $3.89/mmBtu for December 2021, a 61¢/mmBtu premium to Waha for the same period. El Encino prices averaged a slightly wider 68¢/mmBtu premium in November 2021.

By David Haydon

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21/11/24

Cost of government support for fossil fuels still high

London, 21 November (Argus) — The cost of government measures to support the consumption and production of fossil fuels dropped by almost third last year as energy prices declined from record highs in 2022, according to a new report published today by the OECD. But the level of fiscal support remained higher than the historical average despite government pledges to reduce carbon emissions. In an analysis of 82 economies, data from the OECD and the IEA found that government support for fossil fuels fell to an estimated $1.1 trillion in 2023 from $1.6 trillion a year earlier. Although energy prices were lower last year than in 2022, countries maintained various fiscal measures to both stimulate fossil fuel production and reduce the burden of high energy costs for consumers, the OECD said. The measures are in the form of direct payments by governments to individual recipients, tax concessions and price support. The latter includes "direct price regulation, pricing formulas, border controls or taxes, and domestic purchase or supply mandates", the OECD said. These government interventions come at a large financial cost and increase carbon emissions, undermining the net-zero transition, the report said. Of the estimated $1.1 trillion of support, direct transfers and tax concessions accounted for $514.1bn, up from $503.7bn in 2022. Transfers amounted to $269.8bn, making them more costly than tax concessions of $244.3bn. Some 90pc of the transfers were to support consumption by households and companies, the rest was to support producers. The residential sector benefited from a 22pc increase from a year earlier, and support to manufacturers and industry increased by 14pc. But the majority of fuel consumption measures are untargeted, and support largely does not land where it is needed, the OECD said. The "under-pricing" of fossil fuels amounted to $616.4bn last year, around half of the 2022 level, the report said. "Benchmark prices (based on energy supply costs) eased, particularly for natural gas, thereby decreasing the difference between the subsidised end-user prices and the benchmark prices," it said. In terms of individual fossil fuels, the fiscal cost of support for coal fell the most, to $27.7bn in 2023 from $43.5bn a year earlier. The cost of support for natural gas has grown steadily in recent years, amounting to $343bn last year compared with $144bn in 2018. The upward trend is explained by its characterisation as a transition fuel and the disruption of Russian pipeline supplies to Europe, the report said. By Alejandro Moreano and Tim van Gardingen Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Investment funds’ net long on Ice TTF reaches new high

21/11/24

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21/11/24

Investment funds’ net long on Ice TTF reaches new high

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Cop: Talks in Baku torn between mitigation and finance

21/11/24

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21/11/24

Cop: Talks in Baku torn between mitigation and finance

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Cop: EU, four countries commit to 1.5°C climate plans

21/11/24

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21/11/24

Cop: EU, four countries commit to 1.5°C climate plans

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Cop: Australia backs no new coal power call: Correction

20/11/24

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20/11/24

Cop: Australia backs no new coal power call: Correction

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