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.
The ongoing trend of growing natural gas imports into Mexico from the United States will probably continue into the foreseeable future, with significant implications for the country's energy landscape. Data from the U.S. Energy Information Administration (EIA) highlights a steady rise in Mexico's reliance on natural gas imports over the past decade. U.S. natural gas exports to Mexico averaged about 1.7 Bcf/d in 2012. Twelve years later, after two different governments' energy policies, this cross-border flow reached levels above 6 Bcf/d. This strategic interchange reflects an 11% average annual increase over that period. This trend is poised to persist, as Mexico's domestic production remains stagnant.
Mexico's electricity and economic activities rely on imported natural gas. Natural gas power plants account for 59% of electricity consumed in Mexico daily. However, contrary to what might be assumed, natural gas is not the preferred energy input in industrial operations. There is no correlation between the imported volumes and gas purchased as fuel for enterprises that produce cement, chemicals, glass, metal products and paper. According to the Mexican Energy Ministry (Sener), between 2012 and 2017, industrial natural gas consumption increased just 23% to 1.8 Bcf/d from 1.4 Bcf/d. The numbers for more recent years contrast with imported gas figures. Natural gas consumption in the industrial sector in 2022 was just 1 Bcf/d. This low level is not a simple result of the Covid-19 pandemic, but is consistent with the declining pattern that began after 2018. Recent trends suggest the drop is continuing. For instance, from February to June of this year, growth rates have been negative.
In contrast, the industrial sector has shown stable growth in its electricity intake of 1.7% annually since 2012. While industrial consumers contribute to natural gas demand, their role is more indirect, with its implicit effect on the power generation sector. However, enterprises and policymakers have missed significant opportunities for broader natural gas utilization.
A closer examination of Mexico's energy matrix reveals that while electricity and natural gas account for 70% of industrial users' energy inputs, coal, petroleum coke, and liquefied petroleum gas are still widely used in intensive transformation economic activities. The continued use of these more emissions intensive sources highlights the need for energy substitution and the greater use of gas.
By transitioning to natural gas, Mexico could improve efficiency and reduce emissions. More efforts in deploying last-mile pipelines, improving network connectivity, and incentivizing cogeneration projects would be a desirable policy objective. Enhanced access to natural gas could also support broader industrial adoption.
The northeast region concentrates 36% of Mexico’s industrial consumption. Here, industrial users have adequate access to natural gas infrastructure and supply options. They can lower their energy supply costs and boost their competitiveness by substituting out other fuels with natural gas.
The states in the south region are quite different. Without natural gas delivery infrastructure, there simply is no option for its use in industry. That is the case for Guerrero, Quintana Roo and Chiapas. Other states have pipelines, but lack industry. Tabasco is one of the main gas producing regions, but its industrial consumption reaches just 3% compared with the rest of Mexico.
Over the past decade, consumption of all energy sources within Mexico's industrial sector has shown notable fluctuations. After peaking in 2017 at 1876.65 petajoules, consumption gradually declined, particularly during the Covid-19 pandemic in 2020 and 2021. This significantly impacted industrial activities. Since 2022, there has been a recovery in consumption levels, but they are still below their historical peaks.
The appearance of new supply options during the first open season managed by Cenagas on the Sistrangas network and the consolidation of the Ramones project as the main entry point of imported gas supported industrial activity in Mexico. The declining energy consumption in industrial operations also could be derived from thermal efficiency. Still, enterprises are likely hesitant to invest in new furnaces or energy facilities, given the uncertainties around private participation in the energy sector.
The demand for natural gas in Mexico will likely grow as part of a general tendency, rather than a process spurred by any massive industrial project. Regarding the much discussed phenomenon of nearshoring, the expectations for its impact on natural gas demand appear more speculative than concrete. Common sense would suggest that nearshoring is a potential driver for increased natural gas consumption, but reality has yet to prove this theory. The immediate effects of nearshoring are more pronounced in the electricity network, with an uptick in electricity demand due to new industrial facilities. However, this has not translated into significant new natural gas-fired power plant projects, at least not so far.
Sener does not see gas demand in the industrial sector growing much in the next 15 years. Even industrial regions like Nuevo León show no significant increases in natural gas consumption, according to their projections. From 2033-2037, Nuevo León's projected consumption is set to increase to 837.7 MMcf/d from 773.3 MMcf/d, indicating modest growth that does not suggest a dramatic shift in industrial activity driving natural gas demand. That said, it could be that Sener has undershot projections. Industrial gas demand in Nuevo León in 2023 was actually 871 MMcf/d.
Beyond any dramatic economic change, gas demand has increased gradually for industrial purposes and evolved steadily without spectacular shifts. That example can be a more helpful guideline than any speculative enthusiasm.
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.
