LNG Re-Exportation to Bring Opportunities, Challenges to Mexico

Mexico relies on natural gas for its electricity generation, with approximately 60% of its energy production coming from this source. However, despite efforts to increase domestic production, Mexico still depends on imports, primarily from the US. As the demand for electricity and natural gas is set to rise in the coming years, Mexico has to address these challenges and seize the opportunities presented by the nearshoring trend and liquefied natural gas (LNG) re-exportation.

Mexico's natural gas consumption stands at 8.3Bcf/d, of which it imports 5.8Bcf/d. The remaining domestic production only fulfills half of PEMEX’s demand. This dependency on imports poses a vulnerability to Mexico's energy security.

The demand for natural gas in Mexico is expected to increase in the coming years. Both CFE and PEMEX will require more natural gas to meet the growing energy needs of the country. Furthermore, the nearshoring trend, which involves relocating industrial operations closer to the final market, is expected to attract more industrial players to Mexico. This influx of industrial activity will necessitate vast amounts of energy, including natural gas.

Mexico has made significant investments in its pipeline infrastructure, expanding it to over 6,000km during the 2012-2018 administration. This network enables the country to import natural gas from the US at competitive prices. Moreover, Mexico's access to competitive prices, along with the increasing global energy demand and recent geopolitical challenges, has positioned the country as an attractive hub for LNG re-exportation.

For Mexico to fully develop its potential as an energy hub, two critical factors need to be addressed. First, regulatory development is crucial to provide a favorable environment for the natural gas sector's growth. Clear regulations and streamlined processes will attract investment and foster industry collaboration. Second, collaboration with private players is essential for Mexico to leverage the expertise and resources of private companies in developing the natural gas sector.

Nevertheless, the use of pipelines for gas re-exportation may present a significant constraint on the supply of natural gas to Mexico, according to Mexico Evalúa. While Mexico's pipeline network has facilitated imports and allowed for competitive prices, the redirection of natural gas for re-exportation purposes can potentially limit the availability of this energy resource within the country. Balancing the needs of re-exportation with domestic consumption highlights the importance of strategic planning and regulatory measures to ensure a stable and sufficient supply of natural gas for Mexico's growing energy demands.

Moreover, PEMEX plays a vital role in Mexico's natural gas production. However, despite a slight recovery in domestic natural gas production levels, the national oil company still faces significant challenges in promoting the use of natural gas extracted from its fields. Recent reports have revealed contradictory practices, such as an increase in flaring at the Ixachi field, despite previous commitments to reduce such wasteful practices. Over a period of three years, PEMEX flared resources worth US$275 million at the Ixachi field and wasted an additional US$67 million at the Quesqui field over two years.

Mexico's reliance on natural gas and its increasing demand present both challenges and opportunities for the country's energy development. While the pipeline infrastructure and potential for LNG re-exportation provide favorable conditions, regulatory development and collaboration with private players are vital for the sector's growth. Additionally, addressing the challenges faced by PEMEX in promoting natural gas usage and reducing wasteful practices is crucial. By overcoming these obstacles, Mexico can achieve a more sustainable and secure energy future, meeting its growing demand while maximizing its potential as an energy hub in the region.