Mexico’s dependency on the United States for natural gas supplies is expected to continue to rise and hit record levels during the country’s next presidential administration from 2024-2030, according to Adrián Duhalt, a research scholar at Columbia University’s Center on Global Energy Policy.
Mexico’s natural gas imports via pipeline have averaged 6.08 Bcf/d year-to-date through April 24, up 497 MMcf/d from the same period last year, Wood Mackenzie data show.
That trend is expected to continue during Mexico’s next presidential administration, which will take office on Oct. 1. The country is expected to hold elections on June 2 and is poised to elect its first female president, either Claudia Sheinbaum of the Morena Party or Xóchitil Gálvez of the opposition coalition.
“During the next administration, Mexico's natural gas demand is set to continue increasing and so are imports, and we anticipate that Mexico will import record volumes of natural gas from the U.S.,” Duhalt told NGI’s Mexico GPI. “Greater requirements from power generation and domestic production woes are among the factors that will certainly contribute to this.”
U.S. natural gas enters Mexico through more than a dozen exit points along the border, but Brownsville and Rio Grande City in South Texas together account for more than 40% of the volumes, according to U.S. Department of Energy data. For full-year 2024, Mexico’s average pipeline imports are set to grow by more than 300 MMcf/d year/year, potentially crossing the 6.5 Bcf/d line, according to Wood Mackenzie’s latest projections.
As Mexico welcomes more international companies looking to relocate operations to the country in the upcoming years, it could rely even more on U.S.-sourced natural gas.
“From a policy and regional perspective, natural gas boasts the potential to become a driver of economic growth in southern Mexico, provided that additional supply reaches states like Veracruz, Oaxaca, Tabasco and Yucatán and that development programs such as the Interoceanic Corridor move forward,” Duhalt said.
Pemex Debt
Part of the reason why Mexico needs to import so much natural gas is a troublesome situation at state oil and gas giant Petróleos Mexicanos, or Pemex.
In an April 26 report, Duhalt analyzed the post-election challenges facing Pemex, which currently has $101.5 billion in outstanding liabilities and is the world’s most indebted oil company and biggest drain on government finances.
While previous Mexican administrations have done little to reduce Pemex’s massive debt, the country’s next president would need to immediately introduce a plan to improve the company’s ailing operations and balance sheet, according to Duhalt.
“Among the most confrontational points of contention between the (presidential) candidates has been how to handle Pemex, which is so overwhelmed by debt and lower-than-projected crude oil production that posting a net profit is attainable only through government support via tax incentives and capital injections,” wrote Duhalt in the report. “Regardless of which candidate or policy approach prevails, the task of turning Pemex into a profitable organization that can stand on its own cannot be left unaddressed.”
The report echoed recent calls by Mexican government officials and energy industry experts that insist the next administration – whether led by Sheinbaum or Gálvez – must prioritize the reduction of Pemex’s debt and devise a plan to address the company’s litany of operational inefficiencies.
In comments in late April, Emilio Romano, Managing Director of Bank of America in Mexico, said that Pemex is the country’s biggest fiscal risk and that its mammoth debt inhibits Mexico from being a developed nation.
According to Duhalt, between 2010 and 2018, Pemex’s total financial debt surged from $53.7 billion to $105 billion. The company’s debt maturing between 2024 and 2027 amounts to $53 billion, or around half of its current financial debt.
“Given the Mexican government’s tight finances and global challenges that tend to affect the hydrocarbon sector – often unexpectedly – it remains to be seen whether Pemex can generate enough cash flow to fulfill its commitments,” Duhalt said.
Sheinbaum Refinancing Plan
Sheinbaum, who is leading national presidential polls and for more than 25 years studied energy and electricity markets as an academic, said in an April interview that, if elected, she and her team would seek to refinance Pemex’s debt and develop a long-term business plan for the company.
The candidate said that by refinancing Pemex’s debt – which would be completed in either this year or 2025 – the government would free up more capital to invest in hydrocarbons production and improved efficiencies at the country’s seven refineries. This would allow the company to begin to develop other energy sources, such as renewables and cogeneration plants, to boost electricity production.
Pemex’s crude oil production fell to 1.54 million b/d in 1Q2024 from 3.4 million b/d in 2004. The company also reported a 7.5% year/year drop in natural gas production in the first quarter as the country’s aging offshore oil fields showed weaker output.
“Mexico’s presidential campaign has certainly cast light on the pressing need to address Pemex woes,” Duhalt wrote. “In sum, the policies instrumented by the incoming president could not only shape the production and financial prospects of Pemex but also play a pivotal role in steering Mexico toward a more resilient and sustainable energy future.”
