Energy Policy Should Consider Mining Interests

Q: Energy and climate change are two of the most important issues for any extractive industry. How did you become an expert in this issue?

A: As Deputy Director for Energy Management at Minera Mexico I am overseeing energy matters such as diesel, fuel oil, natural gas, and electricity. Grupo Mexico has its own wind power and combined cycle power generation plants, which are operated by Mexico Generadora de Energia. The rest of our energy is provided by CFE or third parties. I also oversee our diesel consumption, which amounts to 15 million liters per month, and our own natural gas pipeline, through which we consume 90 btu per day.

Q: What are the main challenges facing the Mexican mining industry in terms of energy consumption?

A: On average, a mining company’s energy consumption accounts for about 30% of its operating costs, and can even exceed labor costs. Grupo Mexico’s operations are located in remote areas, so energy supply tends to present a big challenge. Natural gas is one of our primary energy sources, but fuel oil has to be used for certain applications in areas where natural gas is not available.

Q: Which initiatives has CAMIMEX tabled so far to tackle issues of concern to the mining industry related to energy and climate change?

A: We work closely with CONCAMIN and associations such as CCE and CESPEDES to find solutions to the challenges of energy usage and climate change in a mining setting. We keep track of any laws and regulations that arise as well as tariffs proposed by CRE and any moves made by PEMEX and CFE. We follow legislative changes very carefully to ensure that any new regulations or rates do not negatively affect the mining industry. For example, the Energy Reform is somewhat discriminatory toward the mining industry. CFE is still heavily favored over private companies in the awarding of contracts. The suggestions we made for the drafting of the secondary laws were disregarded.

Q: Has the Energy Reform created any positives for the mining industry?

A: With the free trade of energy now being possible, private companies can enter this market with few requirements. We also believe that fossil fuel imports will be strengthened considerably, allowing mines to have far easier access to diesel at much better prices. The new pipeline network will also improve the availability and lower the costs of gas in most areas of Mexico, given the volumes of cheaper gas to be imported from Texas. We will have to see whether opportunities arise for PEMEX, private oil and gas operators, or mining companies, to start extracting shale gas. Mine operators could well be interested in extracting shale gas to supply their own operations. For this to happen, we will also have to see what dues, fees, and royalties CRE chooses to impose on this energy.

Q: Why does it make sense for mining companies to turn to renewable energy?

A: At the moment, high voltage electricity in Mexico costs about US$0.11 per kWh whereas wind energy costs US$0.93 per kWh. However, the ability to portage wind power across Mexico remains limited. If Grupo Mexico was to ask CFE to portage 500MW, we would be told it did not have the capacity to do so. However, wind power can be a good alternative for companies with medium voltage consumption. This is why companies like Peñoles and Grupo Mexico are able to sell any surplus power generated to other companies. Wind power is definitely profitable but more must to be done to fully use this renewable energy resource, since the transmission lines in the southeast of the country are saturated. One of CFE’s subsidiaries is currently working to improve these lines and substations. If this is achieved, it is very likely that the mining industry will double its installed renewable energy capacity.

Q: What are the Commission’s priorities in the short and medium-term?

A: We will continue to keep up the energy consumption statistics we have achieved over the years, by continuing to monitor the progress of energy-related regulations and tariffs, while proposing improvements to Mexico’s energy supply and control policies. We also want to see FIDE and CONUEE pay more attention to the mining industry. Finally, we are seeking to improve funding for the replacement of equipment.