Natural Gas: The Essential Ally for Nearshoring in Mexico

For nearshoring, the new paradigm for company facilities, natural gas-based electricity is an ally. Nearshoring is the process of moving production and service facilities closer to a company's key consumer markets, and it was of great interest to North America even before the pandemic. After the impact of COVID-19, companies and investors have found more reasons to promote nearshoring, and all indications are that this process is accelerating, so we will soon see results.

In terms of labor costs, nearshoring (close location) is not as cost-effective as offshoring (location abroad), but companies can gain significant benefits by opting for the former strategy. This is because there are countries that offer advantages beyond salaries, such as a privileged geographic location, availability of inputs, an established work culture, and a highly skilled workforce. Additionally, nearshoring reduces potential risks from phenomena such as the pandemic, which affect global supply chains, by establishing operations in geographically close countries with strong trade relations.

Mexico offers all these advantages and is part of a powerful free trade agreement with the US and Canada (USMCA), which positions the country in one of the world’s most economically stable regions. For this reason, several national and international analyses have ranked Mexico among the countries that could potentially benefit the most from nearshoring.

Furthermore, there is an additional and crucial advantage for industry and manufacturing: the reliable availability of electricity generated from natural gas, a fuel with abundant supply in Mexico and with significant possibilities to further increase its presence thanks to the connection with the US state of Texas. 

In Mexico, 59% of electricity is generated using natural gas, and the electricity sector is the main consumer of this fuel. The continuous and stable availability of natural gas ensures a constant and uninterrupted supply of electricity, guaranteeing the efficient operation of businesses. This is especially important for the industrial and manufacturing sectors, where electricity is a critical factor in production costs. 

In the context of industrial costs, affordable electricity is essential for companies to remain competitive in the global marketplace. This results in more competitive prices for products manufactured in Mexico, which stimulates economic growth and attracts investment to the country. It is important to consider that improving the competitiveness of the manufacturing sector is crucial, as this economic activity is a key driver of the Mexican economy, with its exports accounting for 88% of total exports in 2022. 

The manufacturing sector requires a constant and reliable supply of energy to maintain efficient operations, especially in the production of automobiles, auto parts, chemicals, electronics, and steel, among others. Generating electricity from natural gas reduces energy costs, allowing companies to allocate resources to other areas, such as innovation, product development, and expansion.

This could be a new wave of growth for the aforementioned industrial sectors, which already attract the most foreign direct investment (FDI) to Mexico. In fact, according to statistics from the Ministry of Economy , in the last 10 years, transportation equipment manufacturing, computer and electronic equipment manufacturing, and the chemical industry have led foreign investment in the manufacturing sector and now have better conditions.

In terms of infrastructure, Mexico has made significant progress in supporting this capital attraction. Currently, the country has a solid network of gas pipelines in the northern and central regions, allowing for efficient distribution and continuous supply of natural gas to power plants and industry in general. This reliable infrastructure plays a crucial role in supporting the industrial sectors and attracting FDI to Mexico. 

In addition, the Puerta al Sureste project is being planned. This is a government-private sector initiative that will utilize the natural gas entering the country through the Sur de Texas-Tuxpan marine gas pipeline to strengthen infrastructure in southeastern Mexico. This initiative will allow the expansion of natural gas supply capacity in the region and promote the generation of cleaner and more accessible electricity.

Finally, the availability of natural gas-based electricity aligns with the sustainability and environmental responsibility goals of many global companies, and even more that have plans for international expansion. In the near future, companies with a strong track record of sustainability goals will be the most attractive to establish themselves in Mexico, as support for such objectives becomes increasingly important on the public agenda. This emphasis on sustainability and environmentally responsible practices is likely to play a significant role in investment and business decisions in Mexico, as companies seek to align themselves with the growing importance of environmental awareness. 

The availability of adequate natural gas infrastructure plays a critical role in attracting FDI to Mexico and is one of the factors weighed before deciding where to locate. Mexico must continue to invest in developing and strengthening its infrastructure to capitalize on the nearshoring dynamic and successfully attract foreign investment.