Hans – Joachim Kohlsdorf
Energy to Market
Expert Contributor

Shifting Paradigms: From Hydrocarbons to Future Energies

By Hans – Joachim Kohlsdorf | Wed, 10/14/2020 - 09:35

Much of our attention has been focused on relevant events in the hydrocarbon sector, but are these still a national priority for Mexico? It should be noted that during the last 30 years, the Mexican industrial platform demonstrated impressive development in many sectors and in most of the states of the republic.

Mexican exports surpassed US$400 billion in 2019, totaling almost 37 percent of GDP. In that same year, the automotive sector exported more than US$100 billion and generated approximately 1 million jobs. This sector has been a key driver of national industrial modernization, vocational and technical training, and substitution of imports. The automotive industry has, for this reason, been the center of attention for the economic push of the country.
If we broaden the economic contribution criteria and consider the generation of foreign currency, the fiscal revenue of the government and the generation of employment, before reaching hydrocarbons,  we can add the agro-industry, tourism, electronics and medical devices to the priority sectors.

The hydrocarbon industry, however, accounts for US$25 billion in exports and has a net trade balance deficit (without petrochemicals) of approximately US$14 billion. The petrochemical industry is clearly a stronghold with a great potential, but I would like to go beyond this discussion. It is clear that the impact of gasoline on our transportation model and of hydrocarbons on energy generation play a crucial role in the country's well-being. 

But we are living in a time of technological changes that are really significant. Due to its low cost and lower polluting emissions, natural gas is replacing other hydrocarbons within the energy source matrix, particularly in the generation of electricity in large combined cycles and in cogeneration, such as in natural gas for vehicles and fuel for boilers. Technological changes in hydrocarbon exploration and extraction have increased supply, while consumption growth has been slowed, leading to a price collapse. It is clear that, in turn, the fall in prices has had a major impact reducing the use of coal in favor of natural gas. It might even be said that there is an over-supply of inexpensive and widely available hydrocarbons worldwide and especially within North America.

Electric power is becoming more and more essential. The generation of renewable sources, wind, sun and biogas, however, shows the highest growth rates within the electricity generation matrix, despite the fact that consumption of natural gas is growing at the same rate. At Energy to Market we support the innovations of the electricity industry , in particular with investments to improve the quality and stability of the electricity supply. Investments in batteries, modern inverters, capacitors and other elements must accompany the growing distributed generation not only to improve the quality of the user's energy, but also to support the stabilization of the transmition and distribution grids. Distributed generation and electrical mobility are complementary platforms and this development is increasingly reinforced by technological advances in batteries, inverters and specialized software.
Energy as a basis for mobility is fundamental, but let's continue with the automotive sector. The global trend toward clean generation and emission reductions has changed consumer preferences and they are increasingly buying hybrid and electric cars. This trend has also taken hold in segments such as bicycles, scooters, motorcycles, light-duty vehicles and more. E-mobility is here to stay. At the local level, the governments of cities such as Paris, London and Mexico City and Queretaro in Mexico are already clearly initiating the transition to "zero" emissions transportation. In cities like Beijing, only electric motorcycles are allowed to circulate, motorcycles with combustion engines have been banned. The cost of electric vehicles is falling almost faster than their rising efficiency as comfort and range are increasing. Electric mobility has become aspirational and will radically change urban planning. 

At the beginning of this article, we saw the value of Mexico's automotive industry. The challenge of securing the industrial future of the country largely depends on the national automotive industry that is leading this transition. Mexico was the sixth-largest automotive manufacturer worldwide in 2019, with almost 4 million cars manufactured. The total output of the automotive parts industry exceeded US$90 billion annually. This industrial platform will be affected by the transition to electric cars and many of our factories will have to close or decrease their production. The important factor is to attract the new technologies that are critical for electric cars: batteries, regenerative brakes, electric motors and onboard electronics, and to get international automakers to manufacture their hybrid and electric platforms in Mexico.

Governments should not subsidize industries. They should take advantage of their regulatory sovereignty to encourage the adoption of new technologies. Maximum permitted emissions and the circulation of polluting vehicles can be limited by environmental standards. Urban planning can encourage the installation of electric power stations (almost no one wants a new gas station in their neighborhood), expand the coverage of public electric transport, and facilitate and regulate the use of bicycles, motorcycles and electric scooters. 

The growing use of batteries in vehicles, in countless electronic devices and in companies to improve energy quality will further strengthen the growing renewable generation. These technologies are complementary and mutually reinforcing. Batteries can be charged intermittently as renewable generation becomes available and can even release energy into the grid when more electricity is needed. Mexico currently has a problem with grid stability, not only attributable to intermittent renewable generation. Batteries, electric mobility, renewable generation, on-site generation – all these technologies are complementary and mutually reinforcing. By taking advantage of these technologies, we would achieve great benefits and have a unique opportunity to bring the production of this equipment to Mexico, thus reinforcing our industrial platform.