Mexico City — Mexico’s state-owned companies Petróleos Mexicanos (Pemex) and electric power utility Comisión Federal de Electricidad are taking their first steps to enter the Liquefied Natural Gas (LNG) export business, although Mexico is a net importer of natural gas and President Andrés Manuel López Obrador is striving for energy self-sufficiency.
Mexico consumes 8.36 billion cubic feet per day of natural gas, of which 5.84 billion cub feet, or 70% of the total, is imported, with the remaining 2.52 billion, or 30%, produced by Pemex, according to the most recent data available from the Energy Ministry (Sener).
The strategy of the state-owned companies relies on its partner New Fortress Energy, a US company with which they have entered into separate agreements to develop LNG projects in the Gulf of Mexico and ship the fuel to markets in Europe and Asia.
“There is a lot of unmet domestic demand that I believe could be a better recipient of that gas, and that competing on price could pay better,” said David Rosales, an analyst at Elevation Ideas and former director general of natural gas and petrochemicals at Sener.
Russia’s invasion of Ukraine triggered sanctions on the former, and which supplied 40% of Europe’s gas before the conflict began, and which strengthens the opportunity for CFE and Pemex to export gas.
López Obrador’s government knows the consequences of being a net importer of gas. In February 2021, a winter storm paralyzed the oil industry in Texas, Mexico’s main gas supplier, and the CFE had to cut electricity in 26 states of the country, affecting more than four million inhabitants.
How big is Mexico’s dependency on imported gas?
Mexico generates almost 60% of its electricity with natural gas, mostly imported from the United States via pipelines.
CFE, through its subsidiary CFEnergía, had already expressed its intention to export natural gas with its excess transportation capacity, as in the case of the Tuxpan-Texas undersea pipeline.
Although the country has the possibility of using other fossil fuels such as fuel oil, its cost is double that of natural gas, which oscillates between $8 per MMBTU, according to Sener data. Diesel, liquefied petroleum gas and LNG are three to six times more expensive.
The natural gas crisis in 2021 cost CFE almost $3.5 billion, and led to a lawsuit by Goldman Sachs against the Mexican company for $400 million for natural gas transaction debts.
Another option for Mexico is to increase gas production in onshore blocks through hydraulic fracturing or fracking, but President López Obrador is opposed to the practice due to the amount of water required in already drought-stricken states.
The only gas production exception made by the government was to return to deep-water drilling, an area heavily criticized for its lack of results, with the Lakach project, with which Pemex intends to produce 300 million cubic feet per day over a 10-year period, of which 190 million cubic feet will be for New Fortress Energy to sell abroad and the remaining 110 million for Mexico’s domestic demand .
“The truth be told, Pemex is always long on its estimates,” Rosales said, who is also CEO of the consulting firm Talanza Energy, adding that Pemex’s production estimate will depend a lot on the future price of natural gas, since a high price could generate more production, but that prices could also fall.
Sener has also tried to lure private companies to buy gas from CFE and Pemex, but the Supreme Court suspended the move.
Sener has not responded to Bloomberg Línea’s requests for comment on the issue.
