Mexico’s Energy Security Requires Natural Gas Investment: IMCO
Mexico's energy security has been proven to be vulnerable to potential natural gas shortages, so it is imperative to implement a strategy to ensure a long-term fuel supply. The Mexican Institute for Competitiveness (IMCO) published a report analyzing Mexico's energy security vulnerabilities under varying short- and long-term natural gas supply scenarios.
Among its main findings, IMCO highlights Mexico's urgency to develop its domestic natural gas industry. From 2010 to September 2021, Mexico decreased its domestic gas production by 54 percent and opted to increase US imports, becoming highly dependent on this strategy.
US gas is decidedly cheap, hovering around US$3/Mcf for many years. Between 2000 and 2021 US natural gas imports rose at an average annual rate of 15.5 percent. However, this extreme dependence now leaves Mexico's supply vulnerable to external shocks such as a February 2021 winter storm in Texas.
To combat this weakness, IMCO identified two key areas of opportunity to strengthen Mexico's long-term energy security: increasing domestic production and investing in storage infrastructure.
The lack of natural gas storage is one of Mexico's main energy security risks. The country is particularly vulnerable to abrupt changes in natural gas supply and demand attributable to fluctuations in climate as well as geopolitical or market conditions. Mexico has only 2.4 days’ worth of natural gas storage. In comparison, countries such as Germany, Austria, Spain, France and Italy have storage capacity over 34 days of average consumption.
To address this vulnerability, Mexico must invest as soon as possible in developing new underground storage infrastructure to increase fuel availability.
In addition to the storage challenge, Mexico also requires enhanced pipeline infrastructure to transport natural gas across its territory. While the expansion of the pipeline network has met the increased demand for natural gas in Mexico, the network still does not adequately reach the southern and southeastern states. These regions have little to no access to this fuel, which limits their possibilities of attracting investment in high-value-added industries that require gas for their operation.
Furthermore, Mexico has the potential to increase its natural gas production by exploiting its prolific reserves. According to National Hydrocarbons Commission (CNH) Commissioner Héctor Moreira, Mexico has 476 areas for natural gas exploration and development that have not yet been assigned, as well as 224Tcf of prospective resources, which are equivalent to 100 years of natural gas supply.
However, 63 percent of Mexico's natural gas reserves are found in unconventional plays. To access them, a collaboration between the public and private sectors is required, as the necessary investments are steep.
Therefore, IMCO recommends resuming hydrocarbon licensing rounds 3.2 and 3.3, which were canceled by President López Obrador at the beginning of his administration. This would represent a step in the right direction toward increasing domestic production without impacting public finances.
IMCO emphasizes that these strategies are not intended to replace current imports in the short term, but rather to gradually increase the production platform so that Mexico can strengthen its energy security to brave future storms.