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Natural gas shortage in Texas causes blackout in Northern Mexico

Highlights

1 Bcf of natural gas from US not available

State utility to use coal, diesel, fuel oil to generate power

Two LNG cargoes to arrive in coming days to compensate

Mexico City — Over 2.5 million households in seven northern Mexican states were left without power as the winter storm that hit Texas over the weekend lowered the amount of natural gas available for export.

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Mexico was unable to import around one of the four billion cubic feet of natural gas that the country sources from the US daily, the state utility CFE said Feb. 15 during a virtual press conference.

Roughly 60% of the electricity produced in the country is generated with natural gas, most of which is imported from the US through a system of pipelines, CFE said.

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The imbalance caused by the lack of gas affected 6.9 gigawatts (GW) of capacity, the national grid operator Cenace said.

CFE obtains 70% of the imported gas through long term contracts, but 30% is sourced in the spot market which saw record prices because of the winter storm, said Miguel Reyes, head of CFEnergia, the company's trading arm.

To compensate for the plants that went off-line, CFE has turned on its power plants that run on diesel, coal and fuel oil, Reyes said.

"We have made all our plants available to the national grid operator Cenace to help solve the imbalance," he said, adding that the service will be re-established fully in the coming days.

The country has also requested two cargoes of liquefied natural gas (LNG), which will arrive through the ports of Mazatlan and Altamira in the coming days, Reyes said.

This blackout makes it evident that Mexico has a dependency to the US natural gas which endangers the reliability of the system in moments of emergency, Reyes said. This was caused by the bad planning of previous administrations, he added.

However, dependency on natural gas is not negative, particularly if the conditions are as good as in the US in terms of pricing, David Rosales, a partner specialized in the midstream sector at consultancy Potenco, told S&P Global Platts.

"American natural gas is one of the most robust sources of energy, and the low price it has had in the recent years has made it even more efficient," Rosales said.

What Mexico needs is specific tools that help the system mitigate the risks associated with natural gas, like storage facilities and higher penetration of renewable energies, he said, pointing out that these two initiatives have been halted by the current administration.

Mexico, under President Andres Manuel Lopez Obrador, began a policy shift that halted the open-market initiatives set by previous administrations in the electricity sector in order to bring back the dominance of CFE.

The country cancelled the long-term auctions to buy electricity from private producers and has made changes to the regulations that allow companies to generate their own power. The president has recently sent an initiative to Congress to modify the priority in which Cenace organizes power plants to give preference to CFE.