STORY INLINE POST
Mexico is the fourth-largest oil producer in the Americas after the US, Canada and Brazil, with oil production at 1.92 million b/d in 2021 and estimated oil reserves of 5.8 billion barrels. From the perspective of power, the country had an installed capacity of 80GW in 2019, with gas-fired power generation representing more than 50% of its capacity, followed by hydro power generation. Against this backdrop is the AMLO-led return to nationalism and strengthening the role of state-run companies. An attempt at constitutional change with the Energy Market Reform was defeated in Congress in 2022; however, changes to the Electricity Industry Law (LIE) were judged not to be a violation of the Constitution. LIE is facing numerous injunctions at the Supreme Court level. The result: an ever increasing sense of uncertainty for private investors across all energy sectors.
With this being said, is Mexico an oasis of opportunity or, will the country find itself in a situation of opportunity lost?
As it stands now, together, PEMEX and the CFE concentrate a third of energy projects in Mexico and 50% of Mexico’s energy CAPEX. According to EICDataStream, the EICs global CAPEX project database, of that 50%, oil and gas accounts for 80% of CAPEX across 73 projects worth US$121.9 billion. Projects by Woodside (Trion) and Repsol (Block 29) demonstrate that E&P opportunities are not limited to PEMEX. There are also six onshore LNG export projects under development, in addition to an FLNG project by New Fortress Energy in the Gulf of Mexico (in partnership with PEMEX). Looking at the downstream sector, all eyes are on the construction of the massive US$14.6 billion Dos Bocas refinery, the most capital-intensive project in Mexico. On the other hand, renewable energy projects account for $US20 billion in capital spend. This spend encompasses 89 projects across renewables (a high concentration of solar PV projects in Sonora), hydrogen and energy storage. Conventional power is led by combined cycle power plant (CCPP) projects by CFE. Conventional power projects provide for 27 projects with an anticipated CAPEX of US$10.9 billion.
Looking at recent contracting activity and project news from EICDataStream, it seems that mostly state-run projects are moving forward, while privately-held players wait for government approvals. To be sure, some recent project activity examples from EICDataStream include:
Trion Offshore Oil Field – Woodside has a 60% equity share with PEMEX and announced in January 2023 that the company is ready to make a Final Investment Decision (FID). Additionally, in December 2022, the National Hydrocarbons Commission announced that the obligations regarding the Trion field license were complete. Most recently, Woodside launched a tender for the supply of the semi-submersible. It is understood that bids have been received from Hyundai Heavy Industries, Samsung Heavy Industries, Sembcorp Marine and Modec. A contract award is expected in the first half of 2023 and CAPEX is estimated at US$6-8 billion.
Zama Oil Field - PEMEX's 2023-2027 Business Plan has reinforced that the commercial startup date of the project will be in 2024. It is also mentioned that PEMEX, alongside Talos Energy and minor investors Harbour Energy and Wintershall, will present the field's development plan in March 2023. An FID for the project should be announced in late 2023. Currently, there is a tender for EPC for the project with Hyundai Engineering & Construction and McDermott bidding.
Dos Bocas Refinery (PEMEX): The project is nearing completion at an estimated US$14.6 billion CAPEX. Earlier this year, the integration of the pentanes and hexanes isomerizing plant was completed, being the first of the refinery’s 18 processing plants to reach completion. According to Mexico's Energy Ministry, construction work is 96.2% complete as detailed integration is making progress and fuel processing should begin in early 2H23. Current estimates also see the first phase of refining kicking off on July 1, 2023, reaching the second phase on Sept. 15, 2023, doubling Olmeca's fuel processing capacity from 170,000 bpd to 340,000 bpd. In addition, PEMEX's 2023-2027 Business Plan envisages starting up by the end of this year.
Puerto Peñasco Solar Plant (Phase 2): The CFE-led project consists of a 300MW PV development. The plant is in the second stage of a 1GW PV plant and will, unlike Phase 1, inject power into Baja California's Interconnected System (BCA). The Puerto Peñasco projects would also include four electrical substations and 648km-c of five overhead transmission lines as well as a 315km transmission line from Puerto Peñasco to Mexicali. Mexican firm Seselec is understood to be the EPC contractor for the first two phases of the Puerto Peñasco solar project. This month, CFE has added the construction of a 192MW battery energy storage system as part of the Puerto Peñasco scheme. Additional details have also been updated to include the construction of four electrical substations and 648km-c of five overhead transmission lines as well as a 315km transmission line from Puerto Peñasco to Mexicali to establish a connection between the National Interconnected System and the Baja California System.
San Luis Río Colorado Combined Cycle Power Plant: Currently in the EPC stage, this project is a 648MW gas-fired combined cycle power plant in Sonora Mexico. CFE has awarded a US$337 million EPC contract to a consortium formed by TSK and Tecnicas Reunidas for the design and execution of the San Luís Rio Colorado and González Ortega CCPP plants. Siemens will supply gas turbines, steam turbines and heat recovery steam generators (HRSGs). It is understood execution time will be 38 months until completion, hence startup has been moved to April 2025.
These are just a few examples of a long list of state-owned projects moving forward. With the Mexico market expected to remain underfunded for the foreseeable future, as investors turn attention elsewhere with friendlier regulation and market opportunity, and a lack of movement around renewable energy project development, Mexico may find itself with a lost opportunity toward energy independence.