Mexico’s Energy Challenges and Opportunities: Sheinbaum, Pemex, and the Federal Electricity Commission (CFE)

 

     Mexico’s newly elected President Gloria Sheinbaum took office on October 1. Sheinbaum has energy plans mainly continued from her predecessor. These include more government control of the national oil company Pemex, which is suffering from a pretty severe debt of $100 billion and provider debt of $20 billion. She also plans more government control of the Federal Electricity Commission (CFE). These will be reclassified as public companies. However, critics argue that this will discourage private investment at a time when the country, especially the energy and electricity sectors is starving for it. Underinvestment has plagued both oil & gas and electricity. The electricity transmission sector is especially in need of investment.

     In addition to the debt and underinvestment woes, Sheinbaum is planning an ambitious clean energy push for the electricity sector. Mexico’s energy mix currently includes 24% of it being derived from renewables, mostly hydropower. Her goal is to increase that to 45% by 2030. I would rate that as highly unlikely, especially with wind and solar alone.

     Electricity by energy sources, primary energy data, and other Mexican energy stats are shown below.

 

     Mexico also suffers from a ballooning deficit. Sheinbaum has said that Pemex will decrease its E&P spending, which may affect future oil & gas production. The spending cuts of about $1.35 billion through the end of 2024 are expected to help the company preserve capital. Propping up Pemex is important for Mexico but poor management at the company is likely one of the real issues that needs to be addressed. Pemex currently produces 1.5 million Bbls/day of crude oil (1.8 million bpd if condensate is included) and the goal is to maintain that rate. However, wells decline, and investment will be needed to maintain that production.

 

     An NREL report from April 2022 calls Mexico a ‘Clean Energy Powerhouse.’ The report had scenarios where Mexico’s clean energy production increased to between 27% and 34% of the electricity mix by the end of 2024, but they seem to be behind that trajectory or maybe near the low end of it, depending on how it is measured.

 

     Mexico has abundant wind and solar resources. These will no doubt increase. However, the usual grid integration challenges will come along with that increase, including the need for more transmission. The country has some geothermal power production and that could eventually double or triple even though the total additions possible, about 2.5 GW won’t be all that significant and would be very expensive. Most of Mexico’s hydroelectric power is tapped but the report gives about 1.2 GW potential in repowering some hydro facilities. Geographically, solar resources are available throughout the country, but the others are constrained to certain areas of the country as the graphic below shows.

 

     There is no doubt that Mexico will continue to import significant quantities of inexpensive natural gas from the U.S. in order to power its grid and industries. S&P Global reported in November 2023 that Mexico was importing 5.7 BCF/day of natural gas, all from Texas. This gas, mostly from the Permian Basin Waha Hub is low-cost now, but they expect some price increases when new U.S. LNG projects are online in 2025 and beyond. In 2023, this made up 68% of Mexico’s natural gas and they expect that to increase somewhat to 79% by 2050. Mexico does have some onshore production possibilities, particularly in the extension of the Eagle Ford shale play, but has been very reluctant to develop due to perceived envornmental threats from fracking, the lack of domestic infrastructure, and a domestic industry that is not set up for shale gas production via fracking. They also report that 10 new natural gas power plants adding to 6.5 GW in capacity, now under construction and expected to be online in 2027 will require an additional 1 BCF/day of natural gas, presumably most or all of coming it from the U.S. The Mexican government also announced up to seven private LNG export terminals that would export around 50 million mt/year of gas. That gas also would likely come from the U.S. Thus, the increases in gas imports from the U.S. may come sooner rather than later. Those LNG projects also need more pipeline infrastructure and some think most of them won’t get built. AMLO’s government has been accused of poor energy planning. As evidence of this, they noted:

 

“That has led to the country not fully utilizing its own production, which in many cases has led state oil company Pemex to flare or burn much-needed gas. According to the upstream regulator CNH, Pemex flared as much as 12 Bcf/d during a small period in 2023 at one of its new fields because it did not expect output to be so high and lacked infrastructure to utilize it.”

 

     They also summarized Mexico’s domestic natural gas production:

 

“Currently, of the roughly 4 Bcf/d of natural gas produced in the country, 1 Bcf is unusable because of the high nitrogen content and around 2 Bcf is used by Pemex in its upstream operations, leaving only 1 Bcf/d available for the market, panelists said. In addition, lack of a distribution infrastructure makes it even harder to access that available gas.”

 

     Thus, as the article title notes, Mexico is dependent on the U.S. for natural gas, which is the major energy source for its power grid.

 

 

References:

 

Mexico set for energy shake-up as Sheinbaum rewrites the rules. Alek Buttermann. Intellinews. October 21, 2024. Mexico set for energy shake-up as Sheinbaum rewrites the rules (msn.com)

Pemex Delays Projects, Targets $1.35 Billion in Savings. Pipeline & Gas Journal. October 20, 2024. Pemex Delays Projects, Targets $1.35 Billion in Savings | Pipeline and Gas Journal (pgjonline.com)

Mexico: Energy Country Profile. Hannah Ritchie and Max Roser. Our World in Data. Mexico: Energy Country Profile - Our World in Data

Mexico: North American Clean Energy Powerhouse. Clean Energy Report. U.S. Dept. of Energy. National Renewable Energy Lab (NREL). April 2022. Mexico Clean Energy Report (nrel.gov)

Mexico's dependency on US gas to continue but costs could rise: panelists. S&P Global. November 15, 2023. Mexico's dependency on US gas to continue but costs could rise: panelists | S&P Global Commodity Insights (spglobal.com)