Natural Gas Imports to Drive Nearshoring Boom

Natural gas prices fell as Mexico increased imports. Mexico’s demand and dependence on gas imports are expected to grow on the back of the growing nearshoring trend. Natural gas is a crucial element for the energy transition, experts have said. Moreover, industries looking to relocate to the country will greatly increase energy demand, therefore Mexico must strategically plan to reinforce its energy system.

According to Natural Gas Intelligence, some operators started to reduce their activity but overall production still stood high at 98Bcf/d, driving the prices lower. Since the market seems to expect a slowdown, April’s upcoming prices appear to be higher. Still, Mexico’s imports remain high, approaching 1Bcf/d, 110MMcf/d more in comparison to the past winter.

Moreover, the US Energy Information Administration (EIA) reported on natural gas withdrawn from US storage facilities, underlining a withdrawal of 4Bcf from the South Central region, the facility closest to the Mexican market.

Natural gas is a crucial element for the energy transition, experts have said. Coupled with the acceleration of nearshoring and increasing national energy demand, Mexico must strategically plan to reinforce its energy system, though the government’s desired limited private participation in the electricity sector cuts off investment streams. Experts have addressed the importance of private investment to fund much-needed energy infrastructure upgrades. What is more, industries looking to relocate to the country will greatly increase energy demand.

Tesla and Others Will Demand More and Cleaner Energy

The latest development regarding nearshoring in Mexico is Tesla’s new giga-factory to be built in Nuevo Leon. According to Horacio Zárate Acevedo, President, the National Energy and Petrochemical Council, this marks an opportunity for Mexico to transition toward a cleaner energy matrix. Otherwise, it could create a bigger energy problem in the future. Catalán also said that “it will be interesting to see” Tesla’s plan to source its electric power and what ESG strategies it will deploy, adding that the car manufacturer will likely include certified natural gas.

Eduardo Sánchez, Director of Energy and Mining Promotion, the Ministry of Economy of Nuevo Leon, shared that Mexican states have the autonomy to attract private investors to grow the regional economy. He said that Tesla’s trust in the northern state is a product of Nuevo Leon capitalizing on its closeness to the US, high energy availability and human capital to attract FDI. “Fifty percent of the investment that came to Nuevo Leon in the past two years has been due to the nearshoring trend. However, these companies have energy-intensive production processes, which has been a great challenge for industrial parks that did not invest in this issue during the pandemic,” Sánchez said.

Nonetheless, relocating companies will not only create a greater energy demand, but this electricity must also be cleaner. Sánchez recognized that Nuevo Leon and Mexico have a great challenge in refurbishing the transmission and distribution system.