Natural Gas in Mexico: Is it important?

Natural gas, like oil, has an impact on our daily life. In the case of Mexico, the country relies on natural gas to power up plants to produce electricity (more than 60% of the country’s generation comes from natural gas-fed plants). Also, some key petrochemical processes need natural gas, as well as residential and commercial heating.

Although Mexico has significant natural gas reserves and some production, it is importing natural gas from the US through pipelines that run along the border between the two countries. These imports, according to official data, represent 70% of the country’s daily consumption. The US is positioned practically as the only supplier because pipeline supply is cheaper and the imports of liquefied natural gas from other parts of the world have lost their edge due to price. 

However, like in any business, relying only on one supplier is not wise. Therefore, it is imperative to either find another supplier of gas (which may be difficult) or boost your own natural gas production to have more balanced numbers and reduce the risk of being cut off from your main power generating source, either by a hike in price or by interruption for any reason (such as operational problems or weather). The risk of the high dependency on US natural gas has been discussed by government officials and energy experts over the years, however, no firm action has been taken yet. 

There is no doubt that Mexico’s situation is atypical. It is great to be able to get natural gas from, if not the most economical region in the world for natural gas (Texas), then one of the lowest in price in the world. However, the high dependency on imports and the continually depressed appetite to balance the numbers put the country at continuous risk. Therefore, what can be done to be more balanced and decrease the risk while taking advantage of the lowest gas price in the neighborhood?

First and foremost, Mexico should develop natural gas storage. Currently, the country only has between three and five days of natural gas in storage at the level of the typical daily consumption, while other countries have months. With the heavy natural gas consumption of the country, its storage numbers are well behind the “average” storage numbers of other parts of the world. If this is not a quick solution, at least the first steps should be taken in that direction to try to get those storage numbers to the median level.

On the other hand, some official entities mention that the reason for the high dependence on Texas gas is the natural depletion of the main gas fields in Mexico and talk about opportunities in deepwater and unconventional fields. Although there are enormous opportunities in those areas, the main reason for the subpar numbers regarding natural gas production, I believe, is the lack of investment in exploration and extraction of conventional fields in Mexico.

The risk of Mexico depending on natural gas imports is constant and the February 2021 weather event in Texas is the most recent high impact event: five days of power shortages and rolling blackouts in Mexico due to the lack of natural gas to power up electricity plants, impacting different parts of the country. To minimize the risk, it is important to improve the development of the natural gas industry in Mexico. It is true that a lot of areas in the industry may need a lift, especially upstream (exploration and production) as well as midstream (transportation), but any action to incentivize these areas helps the effort. 

Natural gas must be produced, transported, and delivered to the final consumer with the required quality and within a reasonable time frame. In turn, prices must allow the supply of energy to be profitable to ensure its sustainability, but they must not be excessive, otherwise they would slow down economic growth, leaving natural gas out of reach for low-income households. 

Due to all these factors, the exploration and production of dry gas fields should be incentivized, as the decline of production at these types of fields had been constant and long before the fields with associated gas. This is due to the investment policy of the last decade that has focused on oil production due to better financial results. However, this only increases the dependency on imports and the risk of more power blackouts due to totally external factors. As of 2023, Mexico’s natural gas reserves are insufficient to support economic growth, and if there is no attempt to better the present situation, it will only deepen the dependency on natural gas imports. Besides, continuing down the current path goes against Mexico’s goal of energy sovereignty. Action must be taken sooner rather than later.