The Future of Natural Gas and LNG in Mexico’s Economy

The transition fuel, liquefied natural gas (LNG), is playing a pivotal role in Mexico’s natural gas industry, offering diverse opportunities for businesses to thrive amidst evolving market dynamics. In the same manner that the country stands as a nearshoring hub, its crucial location positions Mexico as a central hub for LNG and LNG exports, says Vania Laban, President, Mexican Association of Natural Gas (AMGN).

Mexico possesses access to the most affordable natural gas globally, a critical advantage as nations endeavor to transition their economies and industries towards cleaner energy sources while maintaining reliability and productivity, as highlighted by Laban. However, Mexico's primary challenge lies in bridging the gap within its gas infrastructure.

Natural gas generates 50% fewer emissions than oil in power generation. Reliable and affordable energy is also susceptible to disruptions stemming from unforeseen factors, including geopolitical conflicts or health emergencies, as evidenced by events over the past five years. In light of these benefits, LNG emerges as a promising alternative to mitigate such potential disruptions.

Ana Ludlow, VP Chief Government Affairs & Sustainability Officer, ENGIE Mexico, emphasized the unique characteristics of LNG, stressing the need for tailored taxation policies. Instead of applying conventional fuel taxation to LNG, Ludlow proposes incentivizing its adoption and utilization. "Advancing in the pursuit of decarbonization alternatives requires leveraging the potential of gas," she asserted. "This entails not only attracting new investors through nearshoring but also enhancing the competitiveness of the industry already established in the country."

Understanding the significance of natural gas and exploring avenues for diversification within this sector are essential for companies aiming to enhance resilience and capitalize on emerging market opportunities. By delving into key market dynamics, infrastructure development, policy implications, and collaborative strategies, businesses can navigate the complexities of Mexico's natural gas landscape and position themselves for sustainable growth.

Sergio Romero, Regional Vice President of Regulation and Public Affairs at Sempra Infraestructura, emphasized that the government bears the responsibility of establishing regulatory frameworks, while the decision to investment lies with stakeholders. “With over 28 years of sustained investment, our dedication is rooted in the industry's strong foundation and the inevitable surge in energy demand fueled by offshoring. Nevertheless, it is crucial to acknowledge that private investment ought to complement public initiatives, thereby forming a unified strategy to tackle the dynamic energy landscape.”

Infrastructure development plays a crucial role in unleashing the full potential of natural gas and LNG in Mexico. "We need infrastructure because we are missing opportunities not only in the energy sector but across the country. Where we need the most investment is in last-mile infrastructure," said Alejandro Peón, Country Manager Mexico, Naturgy Mexico. 

He emphasized that investments in pipeline networks, storage facilities, and liquefaction terminals are vital for facilitating the efficient transportation and distribution of natural gas resources. Companies have the opportunity to contribute and capitalize on this development by collaborating with government entities and industry stakeholders to streamline infrastructure projects and enhance connectivity across the supply chain.

Existing and evolving policies and regulations significantly impact the future trajectory of natural gas and LNG in Mexico. Companies must proactively navigate this regulatory landscape by advocating for favorable policies, complying with regulatory requirements, and mitigating potential risks associated with regulatory changes. Adopting a proactive approach to policy engagement enables businesses to align their strategies with evolving market dynamics and regulatory frameworks, fostering long-term sustainability and growth.

"Public policies have the potential to significantly bolster infrastructure development. With collective agreement and alignment, these policies can be further refined and strengthened. Armed with stable and dynamic regulatory frameworks, companies are empowered to concentrate their efforts on the strategic deployment of infrastructure, thereby fostering the growth and vitality of development parks," said Peón.

The future of natural gas and LNG in Mexico's economy is influenced by various market dynamics, including fluctuating global energy demand, geopolitical factors such as the Ukraine war, and technological advancements. Companies must remain agile in response to these dynamics, embracing innovation and flexibility to adapt to changing market conditions swiftly. By staying abreast of market trends and consumer preferences, businesses can identify niche opportunities and tailor their offerings to meet evolving demands effectively.

Collaboration and partnerships are integral to fostering a more integrated and sustainable natural gas ecosystem in Mexico. Across various stages from exploration and production to distribution and consumption, companies can capitalize on collaborative initiatives to optimize resource utilization, improve operational efficiency, and foster innovation throughout the value chain. Encouraging a culture of collaboration and knowledge exchange within businesses can generate synergies that positively impact all stakeholders, thereby advancing the growth and development of Mexico's natural gas industry.

" With vast opportunities ahead, including unmatched access, infrastructure, and potential for extensive transportation networks, our regulatory market must evolve to foster collaboration between stakeholders and regulators. Effective communication is crucial in this pivotal sector, as we strive to elevate natural gas beyond its traditional role and harness its potential for sustainability. It is our responsibility to expedite this transition, accelerating progress towards a greener future," said Laban.