Mexico, Infrastructure in the Age of Restructuring
by Christina Nagy-McKenna, Enerdynamics Facilitator
How do you reinvigorate energy markets that have grown stale with little new investment and falling productivity? On December 20, 2013, Mexico answered that question by embarking on the long process of rewriting regulations and throwing out the welcome mat to new market participants who could build new infrastructure and bring innovative ideas and fresh choices to customers. Government-owned assets were not privatized, but exploration and production of supply as well as development, ownership, and access to transportation markets were opened to new competitors.
Four years later, the Mexican natural gas market is adjusting to the changes at a modest pace. A lack of production infrastructure has held up supply development, and a similar deficiency in transportation infrastructure has held back potential growth in market demand. New pipeline construction was met with protests by indigenous people who did not want construction on their lands. LDC reform is set to continue in 2018 with new rules that are expected in the first quarter, but outside of the power generation and industrial markets, natural gas customer usage is very low.
The Need for Production and Infrastructure
Natural gas production in Mexico is declining while demand is increasing, as shown in the chart below. The decline is due in part to more robust crude oil prices in comparison to natural gas prices, which incented state-owned oil and gas company PEMEX to choose the development of oil resources over those of natural gas. PEMEX had monopoly control of natural gas exploration until the energy reforms of 2013. The new regulations created vehicles for outside investment, including production sharing, licensing, and profit sharing. In the meantime, Mexico is a net importer of natural gas even though it has 545Tcf of recoverable shale gas and, as of 2015, 15.3Tcf of proved natural gas reserves.
Sener, the Mexican Energy Ministry, forecasts that natural gas demand will continue to grow by 27% by the year 2031. Until domestic gas production can close the gap to domestic demand, this means increased natural gas imports from the U.S. and additional imported LNG.
In response to market demand in Mexico, new gas pipeline projects are under construction in the U.S. that will potentially double the pipeline capacity into Mexico. As seen below, exports to Mexico have already grown substantially since 2010. New pipeline projects include:
- Several new projects from West Texas, including Comanche Trail, Roadrunner Phase II, and Trans-Pecos, that will expand export capacity into Mexico by 2.9Bcf/d.
- Nueva Era Pipeline from South Texas, which will bring 504MMcf/d.
- Central Texas's Valley Crossing Pipeline, which will bring 2.6 Bcf/d of Eagle Ford Shale gas to Mexico.
- Tennessee Gas Pipeline Co. recently filed with FERC to expand its PEMEX Border Crossing facility from 185MMcf/d to 468MMcf/d.
These pipeline projects will interconnect with Mexican pipelines that will carry the new gas supplies to consumers, most of which are new gas-fired power plants. The new Mexican intrastate gas pipeline projects are also international in nature as IEnova, a subsidiary of Sempra Energy, and TransCanada are both involved in several projects that will interconnect with U.S.-based pipelines. For example, the Valley Crossing Pipeline that will interconnect with a pipeline being built by Marina del Golfo S. de R.L. de C. V. is in fact a joint venture between TransCanada and IEnova.
Consent and Controversy
Some of the projects are not without controversy as indigenous groups and ranchers have refused to give rights-of-way to pipelines and have protested other projects including onshore oil development in Chiapas and a wind energy project in Oaxaca. Perhaps the best-known protest is the removal by the indigenous Yaqui tribe of a 25-foot section of the Guaymas-El Oro segment of the Sonora pipeline, built by IEnova. The Yaquis community of Loma de Bacum claims that they never consented to the project being built on their land, and the Energy Ministry of Mexico, whose Social Impact Evaluation team is small and understaffed, agrees. The pipeline sits empty while IEnova waits for judicial permission to repair or reroute it. Development of shale gas within Mexico will also be a delicate matter as the areas with most potential are in the states of Veracruz and San Luis Potosi, home to numerous indigenous groups.
The 2018 forecast shows more growth to the natural gas infrastructure in Mexico as additional pipelines come on line and are interconnected to U.S. supplies. But uncertainty is on the horizon. While new pipelines in development are driven by demand from gas-fired power plant projects, the recent damage to IEnova’s Guaymas-El Oro pipeline introduced an unanticipated risk. The Energy Ministry is answering that risk by looking to expand the number of people in its Social Impact Evaluation team and finding ways to better communicate with the 70 indigenous groups recognized by the government. Lastly, the next general election will take place on July 1, 2018, with the election of a new president. It is unknown if the future president will seek to continue with the energy reforms given the current tense relationship between the U.S. and Mexico.
Footnotes and references:
 EIA, “Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside of the United States,” June 2013, page 6.
 Oil & Gas Journal, Worldwide Look at Reserves and Production, January 1, 2016.
 Sener, Secretaría de Energía, Prospectiva de Gas Natural 2017-2031, page 59.
Bradley, David, ”Mexico NatGas Demand Warrents Pemex Border Crossing Design Capacity Increase, TGP Says,” Natural Gas Intelligence, January 4, 2018.
Clark, Steve, “Valley Crossing Project Will Deliver Natural Gas to Mexico, “ Brownsvilleherald.com, December 16, 2017.
Clemente, Jude, “When Will Mexico Start to Frack for Natural Gas,” Forbes.com, August 19, 2017.
Collins, Ryan, “Wrath of Harvey Lays Bare Mexico’s US Natural Gas Addiction,” BloombergMarkets, Bloomberg.com, September 4, 2017.
“Country Analysis Brief: Mexico,” US Energy Administration, Revised October 16, 2017.
de Montmollin, Peter, “Sener Sees Mexico’s Natural Gas Demand Rising 27% by 2031,” Natural Gas Intelligence, January 12, 2018.
Nemec, Richard, “Mexico Energy Opportunities Said Hindered by Price Uncertainty, Lack of Infrastructure,” Natural Gas Intelligence, January 30, 2018.