Mexico’s recent widespread blackouts serve as a warning in failed policies for the current and incoming governments, but solutions are available, experts said Thursday.
Speaking in San Antonio, TX, at the 10th Mexico Gas Summit organized by Industry Exchange, Grupo Alfa’s Rodolfo Gamboa, vice president for Energy said, “The impending energy crisis that we are only seeing the beginnings of…is coming if real problems are not solved.”
Gamboa stressed that the frailties exposed by recent power outages were solvable. One solution was increasing natural gas production in Mexico.
The potential to produce domestic energy in Mexico is “huge,” the Grupo Alfa executive said. However, “we have been waiting for six years,” as the administration of President Andrés Manuel López Obrador has stalled progress.
“The key word is potential. There is a lot of potential,” Gamboa said. “We haven’t scratched the surface yet." What has been done today is simply “leftovers” from the previous operations by Petróleos Mexicanos, or Pemex. Those include “fields that Pemex didn’t want to explore.”
“The problems we face are above ground, not subsurface,” he said. He spoke of Grupo Alpha’s exploration and production efforts through operator Newpek LLC. They are now focused solely on Mexico. “We sold out of the Eagle Ford,” Gamboa said.”We could have just stayed and enjoyed our monthly checks.”
Weaker Energy Security Today?
The Wilson Center’s Duncan Wood, vice president of strategy in Washington, DC, concurred. He said Mexico’s energy security is worse today than it was 10 years ago.
“If you look at Mexico’s energy profile today, there are severe challenges,” Wood said. He cited declining oil and gas production, a depleted electric sector as evidenced by the blackouts, and an increasing dependence on U.S. imports of natural gas and refined fuels.
“Energy security actually looks weaker today.”
Wood said previously, Pemex would help finance government projects, but the situation has reversed. The heavily-indebted state oil and gas giant now depends on the Mexican government “to make ends meet.”
Wood said the blackouts were “not the first time…and are not new.” They demonstrated a lack of investment across the board in energy. “The lack of investment in generation is met by lack of investment in transmission.”
He added, “Mexico only has two days worth of gas storage.” The deficit in energy trade with the United States is worth $29 billion, and “the numbers will keep growing.”
More Domestic Production?
There was general consensus among the speakers that Mexico needed to produce more domestic natural gas.
Mexico’s natural gas production averaged 3.90 Bcf/d in March, down from 4.35 Bcf/d in March 2023. Imports of U.S. gas to meet the shortfall have surged this year.
“If you don’t have enough domestic production in Mexico you are going to run into problems,” said Frontier Advisory Ltd. CEO Warren Levy. “You absolutely need to produce more domestic gas. There is massive gas potential in Mexico but the capital is not flowing to it.”
Among other challenges, Levy said the fiscal rules in Mexico do not support natural gas production. “It’s not competitive to produce. And the capital is telling you that. You are not seeing capital flowing into Mexico.”
He added, “It’s very difficult to run an energy business for a small company. We continue to hold the delusion that one company can do everything.” He was referring to Pemex’s control of the oil sector and Comision Federal de Electricidad’s (CFE) dominance of the power sector. The United States has been successful in natural gas production “because you have a dynamic industry with every type of player you can imagine.”
Brazilian national oil company Petróleos Brasileiro (Petrobras) and Argentina’s 51% state-owned YPF SA are selling assets, Levy noted, and Pemex should follow suit. “Pemex does wide scale projects well. Everything else should be in the private sector.”
Levy added, “Pemex is no longer paying on time…This means you have to increase your pricing. The result is it's expensive to drill wells, it’s expensive to build pipelines. There is less capital available.
“We are going to see more production in the U.S. and less in Mexico,” and more of a reliance on natural gas imports, he concluded.
Next President, More Gas?
One topic of discussion was the low price of natural gas. It is a reason to continue to import gas from the United States, as “it’s a great opportunity,” Gamboa said. “Whoever is the president in the next six years, they have this opportunity to develop the south of Mexico.”
Gamboa told the audience that if “natural gas is piped or transported to every town in south Mexico, you could have 50% growth.
“The best time to do it is when prices are low. The demand is there… the potential demand could be there. The timing component is developing the infrastructure,” Gamboa said.
Mexicans go to the polls on June 2 to vote for a new president. Mexico’s presidential frontrunner Claudia Sheinbaum of the ruling Morena party is the favorite to win. For whoever is elected, though, the challenges are clear, the experts said.
“Surely an economic nationalist will focus on energy security,” Wood concluded, in reference to Sheinbaum.
