Mexico's demand for energy has been on the rise over the last two decades given the rising living standards and further industrialization across the country. This sudden appetite for energy has coincided with a global shift toward clean—or at least cleaner—energies in most corners of the world.
And, Mexico has by-and-large taken a reasonable course of action. Investments in photovoltaic plants and wind farms have increased considerably since the 2010s; however, the realities of its economy do not allow a complete transition from hydrocarbons at the present juncture—a feat that has not been achieved by any other nation as of 2021.
Mexican industries, however, have tried to adjust themselves to the most eco-friendly form of hydrocarbon energy source known to us: natural gas. Unfortunately, there is an inevitable annual deficit between Mexico's gas production and consumption. While the country produces just under 3 billion cubic feet of gas per day (bcf/d), its daily gas consumption is hovering around 8 billion cubic feet.
Despite the COVID-19 pandemic in 2020, which slowed down many industrial activities, by August 2020, Mexico consumed roughly 10% more gas compared to August 2019. The demand increased even further toward the end of 2020, as many industries resumed their activities, and energy consumption picked up.
To offset the aforementioned deficit, Mexico has come to rely on imports from its northern neighbor, the US, via a number of pipelines. Direct imports from the US have—to a greater or lesser degree—freed Mexico from the tricky business of importing LNG using tankers, making the construction of LNG port facilities and storage places unnecessary.
Mexico has, nevertheless, remained active in the LNG market using its existing infrastructure—this time as an exporter or, more precisely, re-exporter. The country has kept its fleet of tankers afloat while building even more LNG storage facilities across its coasts. The completion of the last phase of a 5 bcf/d pipeline by a Mexican midstream oil company, Fermaca, between the US and Mexico in 2020 consolidated Mexico's status as a re-exporter of the US's natural gas.
Mexico's rise as a serious player in the international LNG market, which is currently dominated by Qatar, can soon change the face of the LNG market. Although during the COVID-19 pandemic—and the ensuing global slowdown in industrial activities—oversupply slightly challenged the sector, chances are that as the nationwide vaccination programs continue, the demand for LNG will pick up soon.
Mexico's LNG storage terminals and facilities are more strategically placed than many overseas competitors, but the fact remains that its LNG industry relies heavily on imports from the US instead of domestic production.
This may, in a cursory analysis, sound like a weakness of the LNG industry in Mexico. On the plus side, however, the link between American upstream gas suppliers and Mexican downstream liquefaction facilities ensures American companies' long-term involvement in the expansion of the LNG industry in their southern neighbor.
Despite the deficit between domestic production and consumption, Mexico can now count on the import of such large volumes of gas from the US that the liquefaction and export of the surplus gas can create a notable added value for the sector. The export of LNG from Mexico to markets as far apart as China and Europe was a far-fetched dream not so long ago.
This dream, however, has become a reality with significant sums of FDI. A California-based energy giant, Sempra, is after a thorough overhaul of the Energia Costa Azul (ECA) LNG storage terminal in western Mexico through its Mexican subsidiary, IEnova. LNG exports using IEnova's infrastructure can ensure a steady stream of gas revenue in the coming years. President López Obrador has hinted that IEnova should build a second export facility in Topolobampo near the Gulf of California.
If the reexport of American gas already makes economic sense, imagine how more profitable the industry could become if Mexico's proven reserves suddenly went up due to new discoveries. Indeed, Mexico's proven reserves may go up soon, making the export of LNG a truly lucrative business, especially as the necessary infrastructure is already in place.
Warren Levy, CEO of Jaguar, told TBY his company has been active in gas exploration in the country for some years. The company has been rigging the ground to find more natural gas reserves—or at least ramp up the production volume in existing wells. As Jaguar and similar companies continue to find out more reserves, the feasibility of Mexico becoming a major LNG exporter increases significantly.