Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, is offering the following column by Eduardo Prud’homme as part of a regular series on understanding this process.
Mexico experienced severe disruptions to its energy supply earlier this month, highlighting the vulnerability of the country's infrastructure. These events were not the result of low fuel supplies, as they happened when natural gas imports were at their highest. With the presidential election around the corner, this crisis underscored the need to review current energy policy and assess its effectiveness in improving energy security.
On May 7, several natural gas-fired power plants across the country went offline. Altamira, a combined-cycle plant near the Gulf of Mexico's coast, lost 450 MW of power. In the central highlands, the Villa de Reyes plant powered down 228 MW, and Dulces Nombres, near Monterrey, a further 215 MW.
Altogether, 1,668 MW of power went offline. That was equivalent to 3.34% of the day's peak demand, which was atypically high at 49,887 MW. The reserve margin became acutely slim. It fell to just 3%, below the minimum required level of 6%. Mexico’s grid operator Cenace declared a state of emergency. Consequently, the operator had to cut off further power to avoid the grid's collapse and widespread blackouts were experienced across 21 states.
The root cause was an atypical heat wave that led to unprecedented peak demand for the intensive use of air conditioning equipment. However, there were more outages in the following days, with Cenace sounding repeated alerts.
Cenace said it was in constant communication with state utility Comisión Federal de Electricidad (CFE) to coordinate efforts to ensure enough generating resources were available to keep power running and prevent further interruptions. Cenace and the government attributed the problems to a freak event, an outlier.
But Mexican users are likely to continue to suffer energy supply interruptions during the upcoming three months as the temperature rises. Lack of transmission infrastructure reinforcements, underinvestment in new generation plants, and bad policies are explanations for the outages.
One of the major issues is bureaucratic stagnation in the Comisión Reguladora de Energia (CRE). Rocio Nahle, the former energy minister, frequently complained about granting private companies abundant generation permits with aggregated capacity far above energy consumption. In an address to Congress, she argued that corruption had led to generation overcapacity, unfair competition for CFE and unnecessary expenses for the government. Last week's outages proved her wrong, showing that there are serious structural problems in securing a stable energy supply, especially during times of unusually high demand.
Climate change is causing an increase in extreme weather events that lead to unexpected energy consumption peaks. However, this phenomenon has been central to energy policy discussions for years. It is an identified risk, and its mitigation strategies have been acknowledged by responsible policymakers. Resilience, grid robustness, and diversified energy sources have all been critical components of the energy supply conversation. These goals would require transparent information, steady investment and a continuous commitment to modernize business practices.
In the recent past, the power system has relied mainly upon CFE sponsoring natural gas generation projects through independent power producer deals and private investors' eagerness to save energy expenses by investing in cogeneration.
The outcome has been natural gas generation becoming the backbone of Mexico's energy matrix, providing a significant portion of the country's electricity supply. The regulatory environment and project delays, however, have damaged Mexico's effectiveness and reliability in generating electricity with natural gas technology.
Despite substantial interest from private entities to contribute to the electricity market, CRE has severely restricted the issuance of new permits for private generation projects. This regulatory bottleneck has stifled potential investments that would have enhanced Mexico's energy infrastructure. Instead, CFE has taken the lead on various natural gas projects.
CFE is developing five combined-cycle power plants in Veracruz and the peninsulas of Baja California and Yucatán. These would add about 3,995 MW of power. A government trust would also finance five more combined-cycle power plants, three gas turbine plants, the internal combustion plants at Mexicali Oriente and Parque Industrial and their interconnections. Almost all of the power generated would be fueled by natural gas. Unfortunately, these initiatives have faced delays and have not been completed on schedule, exacerbating the sense of scarce supply.
The limitations of relying predominantly on CFE for energy projects have become apparent. The dynamics of Mexico's current energy landscape, restricted to CFE's participation, have been insufficient to meet the growing demands and ensure a resilient power supply. Even if the policy intention was to reduce dependency on natural gas imports, the reality is that CFE's projects are also heavily based on natural gas technology. Mexico is expected to require an additional 1 Bcf/d in the short term, and the only source available is Texas.
Instead of promoting true energy independence, the current approach prefers centralism and statism. This policy direction has led to a constrained and less diversified energy market that cannot adequately respond to extreme weather events or other disruptions. A robust and resilient energy system requires a more inclusive and transparent regulatory environment encouraging private sector participation and investment. Only through a balanced and diversified approach can Mexico hope to secure a reliable energy supply for the future.
With the presidential election just one week away, this crisis underscored the urgent need for a shift in energy policy. Whoever wins, Congress and the government must provide CFE with enough public resources to develop abundant generation capacity on time. Meanwhile, long-term tenders, transparency, impartial regulators, and effective market monitoring will help to attract more investors. Regardless of who wins, it is imperative that the next administration acknowledges the challenges and implements consistent strategies to modernize and diversify Mexico's energy infrastructure. The country's energy security and economic stability depend on it.
Prud’homme was central to the development of Cenagas, the nation’s natural gas pipeline operator, an entity formed in 2015 as part of the energy reform process. He began his career at national oil company Petróleos Mexicanos (Pemex), worked for 14 years at the Energy Regulatory Commission (CRE), rising to be chief economist, and from July 2015 through February 2019 served as the ISO chief officer for Cenagas, where he oversaw the technical, commercial and economic management of the nascent Natural Gas Integrated System (Sistrangas). Based in Mexico City, he is the head of Mexico energy consultancy Gadex.
