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Mexican official expects rising US gas imports for power

Mexico's imports of U.S. natural gas are expected to increase while the country builds out its domestic gas infrastructure and works to expand gas production and gas-fired power generation as part of a broad energy reform process, a government official said Dec. 7.

"Natural gas consumption has been able to grow quite substantially because Mexico has been able to bring in gas, mostly from Texas," said David Madero, CEO of Mexico's National Control Center for Natural Gas, or CENAGAS. He spoke at the S&P Global Platts Global Energy Outlook Forum in New York.

Mexico imports 60% of the gas it consumes "and that's only going to increase," Madero said, because domestic production has been trending downward. He expects demand to increase by 0.5 Bcf per year for the next five years. Mexico imports 4.3 Bcf/d to 4.5 Bcf/d from the U.S., and that could increase to 8 Bcf/d.

"We are preparing for about 600 MMcf/d of increased demand via imports for the next five years," Madero said.

And while some people in Mexico do not like being that import-reliant for gas, Madero believes that North American energy market integration helps provide energy security and is preferable to a protectionist strategy of "self-sufficiency" in each country.

Mexico is undertaking a "massive buildout" of its pipeline infrastructure, doubling the size of its network from about 5,400 miles of pipelines today to about 11,000 miles in the 2019-2020 time frame, he said. Expanding the pipeline network is an integral part of developing more of its indigenous gas. Estimates from the International Energy Agency and S&P Global PIRA expect Mexico to be producing domestic shale gas around 2030. Asked why development could take so long, Madero said shale formations "are there" but largely unexplored, so the country does not yet have accurate reserve estimates.

Conventional associated gas will likely be developed first, and 60 new exploration and production companies are working on that; 30 are domestic companies and 30 are international. Conventional nonassociated gas will be more difficult to develop at current prices, he said. Unconventional shale gas development is being impeded by a lack of infrastructure. Regulations also are a factor, explained Madero.

Higher gas prices would be needed to "kick start development of new shale areas from scratch," he said, estimating prices would need to be around $4.50/MMBtu for "a couple of years," up from less than $3/MMBtu now.

Although gas prices have been depressed for several years, Mexican power prices have been high because there is not enough gas to supply power generation. Fuel oil and diesel are burned instead. In the short term, ample rain over the summer has hydro power facilities "working quite nicely today," and this is moderating power prices, Madero said. Over the longer term, however, the plan is to "completely move away from liquid fuels" for power generation and move more into gas-fired generation and renewable energy, he said.

Mexico has a goal of sourcing 35% of its power from renewables by 2024 and a broader target of reaching 50% "clean energy" for power generation, Madero said, although the government considers "efficient coal" a clean energy source.

Wind and solar are important in Mexico, Madero said, and while "wind has started off stronger, solar is taking off." The previous model of relying on fuel oil produced at a refinery in Oaxaca and shipped all over the western part of Mexico was environmentally unfriendly and expensive, he said. "So we need to change that to gas-fired generation, and particularly combined-cycle gas-fired generation, which is more efficient," he said.

Jared Anderson is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.