Mexico Projects Higher Gas Consumption in 2024

Mexico's energy secretary last week released natural gas and electricity market outlooks for 2009-24. According to the report on natural gas, demand grew by 3.3% in 2008 from the previous year to 7.204 bcf/d, with the electricity sector accounting for 38.8% of total consumption. Although the slowdown of the economy meant that gas demand growth in 2008 was more modest than the previous year, when it rose by 6.8%, production rose by 14.2% to 6.919 bcf/d. Some 4.320 bcf/d of the total natural gas produced in 2008 was associated with crude oil production and although non-associated gas production fell in 2008 it had been rising at a faster rate in previous years. Over the next fifteen years domestic demand is expected to grow at an average rate of 2.8% per year to reach 11.2 bcf/d in 2024, with the electricity and oil sectors continuing to register the most significant growth. In contrast, domestic gas production is expected to grow by just 2.3% a year over the period to reach 8.7 bcf/d in 2024.

Meanwhile, the electricity outlook anticipates that an additional 37.6GW of generation capacity will be needed between 2009 and 2024 in order to meet a 3.6% per annum projected increase in demand for electricity in Mexico over this period. Installed generation capacity at the end of 2008 was 59,573MW, of which 51,105MW corresponded to public services. Although the government has a programme of new power plant projects due to come into operation in the coming years, not all of them have secured financing as yet.

Outlook and Implications

The domestic gas supply shortfall projected for the next fifteen years means that the country will continue to require gas imports in the form of piped gas from the United States or LNG shipments from other parts of the world. Mexico already has two LNG import terminals in operation and a third is due to start up in 2011. However, reduced demand for gas imports from the U.S. due to the sharp increase in non-conventional gas production from that country means that Mexico's ambition of becoming a transit country for LNG imports to the United States has been frustrated. Instead, several of the initial LNG projects that had been proposed to serve both markets have been abandoned and those that are left will serve the domestic market.

At the same time, falling oil production and delays to the start-up of large hydroelectric plant projects, such as the Parota plant, means that it will be hard for the electricity sector to reduce its consumption of natural gas. The current government is betting heavily on wind to provide additional generation capacity, particularly in the Yucatan Peninsula, but although greater diversification of fuels, increased energy efficiency, and reduced gas flaring are all measures that can help to narrow the demand/supply gap they are unlikely to be sufficient to prevent the country from continuing to require imports of natural gas in order to meet demand.