Expanding the use of natural gas tapped from Mexico’s abundant reserves would help to reduce the carbon intensity throughout many areas of the economy, said Jeremy Martin, vice president of Energy & Sustainability at the Institute of Americas. During the upcoming elections, however, Mexicans will decide whether they want more of the same or a return to a competitive bidding process for oil and gas development.
“The Claudia Sheinbaum campaign seems to be messaging ‘continuity with change’ but in the energy sector it appears more continuity than change, certainly in terms of the primacy of state-owned enterprises,” Martin said in an interview with NGI’s Mexico GPI.
“As for the other side of things, there’s a lot of people in the pro-business groups that are excited about the possibility of Xóchitl Gálvez and her comments about going back to the oil and gas auction process and to return to have transparent competitive bidding, as well as a possible update to modernize the energy reform,” he said.
Sheinbaum, a member of the governing Morena party, and opposition candidate Gálvez face off in presidential elections on June 2
Martin is the vice president of Energy & Sustainability at the Institute of the Americas, an inter-American public policy think-tank located at the University of California San Diego (UCSD). Since 2003, his work at the Energy & Sustainability program has focused on fostering a deeper understanding of the most critical energy issues facing the western hemisphere. Martin is an expert in the geopolitics of energy and closely follows industry trends and policy issues across the Americas.
He has testified before the U.S. Congress on energy issues in Latin America, teaches a graduate course in Latin American Energy Policy at UCSD and the University of San Diego, and serves on the Board of Advisors for the Inter-American Dialogue’s Energy Advisor newsletter. He graduated with honors in History from The Citadel in Charleston, South Carolina and holds a Masters in International Affairs/International Development from the American University in Washington, D.C.
Editor’s Note: NGI’s Mexico Gas Price Index, a leading tracker of Mexico’s natural gas market reform, offers the following Q&A column as part of a series of periodic interviews with market experts of natural gas in Mexico. Martin is the 123rd expert to participate in the series.
NGI: You recently completed a paper for the Development Bank of Latin America and the Caribbean (CAF) about decarbonization and the role of natural gas as a transition fuel in the region. Can you tell us about some of your biggest takeaways and conclusions from the report?
Martin: We completed our assessment and wrote this report for the CAF – to be launched at our Madrid Energy Conference in April – really to look at the role of natural gas in the Latin American and Caribbean region and, what is very clear is that there is an abundance of natural gas and its role as a transition fuel is important in the medium term.
When you look at the southern cone of Latin America, there is a significant amount of gas and, with the right mix of policies, a lot of opportunity to develop it. Among the policy debates and a big question right now is if and how countries are going to electrify transport. It’s understood that is going to be a process that extends over many years, particularly for the personally owned vehicle, and regional countries are looking at how – during the transition process – natural gas can be used to complement renewable deployment and further displace liquid fuels in the power mix to move to a cleaner grid. If your goal is to supplant some of the dirtier and more contaminating sources, you can bring gas to bear pretty quickly in some of the southern cone markets. Consider it energy security and climate action combined.
So, our main takeaways focused on how Latin American and Caribbean can build upon its relatively low-carbon footprint and abundant natural gas resources. In our assessment, the expanded use of natural gas can ensure that countries develop a swifter and effective response to climate concerns. A more sustainable natural gas industry in the region can help these countries achieve a faster, more affordable transition and accelerate decarbonization, by way of displacing dirtier power generation and industrial fuel sources. Some of the report’s highlights on natural gas included that:
* The region’s natural gas network must be optimized over the near and medium-term as part of the transition. Managing methane emissions through reducing leaks, venting, and flaring will be key to enhancing efficiency as near and medium-term consumption increases. These activities will demand immediate investment and increased legal and regulatory efforts.
* Natural gas serves as a valuable medium-term solution for areas that are not yet easily electrifiable, thus making a positive contribution to energy security and overall system resilience.
* Natural gas in Latin American and the Caribbean countries actively facilitates source replacement, enhancing energy efficiency in thermal applications and superseding more carbon-intensive sources in economies’ hard-to-electrify segments.
* Natural gas will help improve efficiency in production and transformation processes. It allows for the decarbonization of consumption segments that cannot yet be electrified with cost-efficient technologies and can reduce the emissions intensity of the energy sector at an accelerated rate by replacing more carbon-intensive fuels and other pollutants.
NGI: You mentioned that your analysis considered the near-term decarbonization impact and emission reduction opportunity for natural gas in Latin America and the Caribbean. What were some of the report’s findings?
Martin: One of the authors with us on the report was Alfonso Blanco, who was the executive director of the Latin American Energy Organization (OLADE) until early last year. He did an entire analysis using OLADE data to show how the use of natural gas should be strategically expanded to facilitate a systematic shift away from more environmentally harmful sources for an immediate impact on emissions levels.
What was found was that, in 2022, total emissions from electricity generation using liquid fuels (diesel and fuel oil) reached 62.2 million tons of carbon dioxide (CO2) annually in the region. Additionally, industrial emissions associated with the use of those same fuels, primarily for thermal industrial purposes, amounted to 34.5 million tons of CO2 annually. These volumes add up to 96.7 million tons of CO2 emissions.
Replacing those carbon-intensive fuels with a lower carbon intensity source like natural gas could mean a 26%, or 25.3 million tons of CO2, reduction in emissions annually.
The analysis of the replacement of liquid fuels with natural gas in electricity generation and industrial thermal uses could reduce emissions equivalent to taking more than 12 million private vehicles off the roads.
NGI: What are your thoughts on the use of fossil fuels in Mexico’s power generation?
Martin: In the near-term, Mexico can enhance its decarbonization efforts by way of gasification. In the region, there’s still a lot of power generation that uses fuel oil, and that’s the case for Mexico as well. The amount of fuel oil being burned by Comisión Federal de Electricidad (CFE) power plants is excessive and, as many studies have shown, it is harmful for air quality and health. Mexico has done well to increase gas-fired generation, but certainly should create a policy path to retire fuel oil plants and replace them with modern and efficient natural gas combined-cycle technology that would also support moving toward a more renewable grid, particularly with the amount of natural gas import infrastructure that’s in place throughout the country. The amount of fuel oil that’s still being used in the country in CFE’s power plants is outrageous.
And a lot of that has to do with the forced marriage between Petróleos Mexicanos (Pemex) and the CFE. Pemex is producing stuff – fuel oil – that’s been banned from maritime transport and that is being displaced or retired by most countries seeking to reduce contamination. So, with no international market for this fuel oil, Pemex sells it to the CFE for them to use for baseload power. Thus, Pemex’s uncommercial production of fuel oil that can’t be sold internationally is burned in CFE’s power plants.
NGI: Mexican elections are less than three months away and energy issues – such as Pemex’s refineries and what to do with them – have emerged as campaign talking points. In your opinion, what should Mexico’s next president prioritize for the energy sector?
Martin: As we know, the next president of Mexico will be a woman and, while its difficult to make conclusions about polls, what is clear is that the Morena candidate Claudia Sheinbaum has defended and aligned with the energy policies of Mexican President Andrés Manuel López Obrador and his “4T” plans. Whether it’s in regards to the constitutionality of the Electricity Industry Law (LIE), or when she’s been questioned about the construction of the Dos Bocas refinery, or in responses to more recent issues such as the contamination at the Cadereyta refinery, it’s very clear she’s aligned with the vision of the so-called Fourth Transformation, 4T, movement.
While Sheinbaum has a background of having a doctorate degree that is environmentally focused and someone who has written scientific papers on climate and renewable energy, the fact of the matter is that she’s really never really disavowed any of the current policy pathways. And so it’s very hard for me to see – other than marginal changes – anything too different. Maybe something like the CFE’s use of fuel, which we mentioned, might be improved, and we will, of course, likely see different people in charge of the CFE, for example. But writ large, I see the status quo and the continuation of the 4T. She’s been very clear with her message so far. The campaign seems to be messaging “continuity with change,” but in the energy sector, it appears more continuity than change, certainly in terms of the primacy of state-owned enterprises.
As for the other side of things, there’s a lot of people in the pro-business groups that are excited about the possibility of Xóchitl Gálvez and her comments about going back to the oil and gas auction process and to return to have transparent competitive bidding, as well as a possible update to modernize the energy reform. And while that might sound good to members of the industry, I think there’s two things to consider.
Number one, those comments are going to sway very few voters. And secondly, I just don’t know if returning to have oil and gas auctions in Mexico is going to be that hugely interesting to the international energy market at the end of the day. It seems like Mexico’s energy industry underestimates how much time has changed things, as well as how much institutional damage has been done by the current government.
If Mexico is going to truly do some of these things that they are saying – such as returning to the energy reform principles – it’s going to take a ton of work. You have regulatory institutions – such as the Comisión Reguladora de Energía, the Comisión Nacional de Hidrocarburos and the Agencia de Seguridad, Energía y Ambiente – that have been completely derailed and denuded. The institutional capacity of these agencies has purposefully been destroyed and politicized.
So, when you talk about restoring energy reform and renewing the auctions and restoring transparency and competitive bidding and bringing in more private investment, sure, plenty of people like that language. But the amount of work that will be required to recover the standing of these institutions is tremendous.
And then, there’s Pemex, which, frankly, neither candidate can be expected to have a feasible plan to effectively or swiftly manage the firm’s downward spiral that has now transcended several administrations.
