Natural Gas Investment Boom Has EndedBy Paloma Duran | Fri, 02/26/2021 - 11:29
Mexico’s Foreign Direct Investment (FDI) boom for natural gas ended in 2020 after the country registered a negative net balance of US$2 billion in US natural gas imports. The decrease in FDI was caused by the COVID-19 pandemic, organized crime and lack of energy reforms that have reduced the country's investment attractiveness.
Mexico is one of the countries that is most open to FDI, ranking 15th among the largest FDI recipients in the world. The sectors that received the most FDI in 2020 were manufacturing, electricity, water and gas supply, retail and commercial trade and financial services. According to UNCTAD's World Investment Report 2020, in Mexico, FDI flows fell to US$33 billion, compared to US$35 billion in 2019, which represents a 5 percent decrease, reported Santander.
Mexico’s natural gas sector had an FDI boom cycle lasting from 2010 to 2019 totaling US$10 billion, which represents 85.9 percent of the total net inflows of FDI in the energy sector since 1999. Mexico ranks third in electricity and gas FDI since 2012, with a total amount of US$13.6 billion between 2013 and 2019. Investment comes mainly from the EU, the US, Canada and Japan. In addition, private power generation projects from foreign companies have created more than 100,000 jobs since 2013, reported El Economista.
During the boom cycle, Mexico attracted US$1 billion in FDI net inflows annually. However, according to SENER, in 2020 the country registered a negative net balance of US$2 million. The country has an important domestic market and a strategic geographic position. Nevertheless, its competitiveness has been affected by organized crime and the lack of reforms in the energy sector and fiscal regulations. Currently, Mexico ranks 60th out of 190 countries in the World Bank's Doing Business 2020 ranking.
The last FDI negative balance in energy was in 2009 and in 2017, the cycle had its highest peak with US$2.7 billion accumulated, which was due to the US’ plans to increase its natural gas exports with better and more gas pipelines. According to SENER, Mexico has been the US’ largest natural gas importer since 2015, since it is the main fuel used for electricity generation in the country. In 2019, the electricity sector demanded 55.4 percent of Mexico’s natural gas, followed by 22.6 percent for the oil sector, 20.2 percent for the industrial sector, 1.2 percent for residential use, 0.5 percent for services and 0.1 percent for road transport, reported El Economista.
From January to September 2020, natural gas consumption decreased 3.9 percent, representing the largest decrease in the last decade. This was primarily caused by COVID-19. In 2020, electricity generation in Mexico was lower than 2019 levels. However, the generation of electricity from natural gas increased and replaced other sources such as fuel and coal.
Additionally, natural gas consumption was recently affected by a cold wave in the US and northern Mexico that froze pipelines and impeded natural gas imports from Texas. Guillermo Nevarez, CFE Senior Executive, said the lack of natural gas caused power outages affecting 7.1 million users. In addition, blackouts and the cold wave have caused economic losses of US$2.7 billion in six northern states, hitting 2,600 companies and 1.3 million workers, reported MBN.
Mexico's high dependence on US natural gas has been a constant energy security problem for the country, since it cannot guarantee its supply and the generation of electricity due to lack of infrastructure and resources. As a result, there have been several government initiatives to strengthen CFE, such as the recent electricity bill passed by the Senate that seeks to prioritize CFE over private generators in the energy market, Bloomberg reported.