Energy, Environment, and Opportunities for Mexico's Natural Gas Sector

good afternoon everyone and welcome my name is Ryan Berg and I'm the director of the Americas program at csis thank you so much for joining us today for a conversation on energy environment and opportunities for Mexico's natural gas sector before we formally begin let's take care of logistics this discussion will last approximately 60 minutes following the panelists remarks in a moderated discussion we will field questions from the audience please submit your questions by clicking on the ask live questions link on the event webpage or use the ask questions function in Zoom again thank you for joining us this afternoon North America is on the cusp of an unprecedented Economic Opportunity in the form of near Shoring the realignment of Supply chains from Global to Regional combined with pre-existing economic integration under the usmca promises to create new opportunities across the board in Mexico the United States and Canada however often underappreciated is the centrality of energy policy to making near Shoring a possibility companies will not move their operations if they cannot be assured of affordable and reliable access to energy as more and more firms adopt environmental social and corporate governance principles they are also demanding Greener energy sources here Mexico regrettably appears to be on the back foot president Lopez obrador's energy policy has prioritized oil over Renewables and positioned heavily indebted state-owned firm pemex at the Vanguard of the country's energy sector a responsibility it has proven unprepared to shoulder fortunately there is a solution in the form of Mexico's prodigious reserves of natural gas which were estimated in 2019 to be well over 6 trillion cubic feet natural gas can play a bridging role in Mexico's energy transition often a cleaner power sourced than oil and driving a number of industrial applications that would prove a boon to near Shoring indeed gas is already the predominant fuel source of Mexico's Energy Mix with demand having risen steadily over the past decade nevertheless Mexico faces serious obstacles to becoming a natural gas Powerhouse most notable among these is the country's continued dependency on U.S gas exports which for the time being have been cheap and plentiful enough to meet increased demand but over-reliance on U.S gas exposes Mexico to supply shocks while systematically disadvantaging Mexico's Southern regions that often lack sufficient infrastructure to meet growing energy demand or capitalize on numerous near Shoring opportunities a more robust Mexican natural gas sector therefore holds the potential to energize near Shoring throughout the country in turn paying dividends for the United States and Canada as well in the form of more resilient and efficient Supply chains the current obstacles should not be understated and it will take sustained private sector-led engagement to develop this industry in time to take full advantage of the present year Shoring moment for this reason I'm delighted this afternoon to introduce our superlative panel of experts to analyze challenges and opportunities for the future of Mexican and North American natural gas I have asked each one of them to provide some framing remarks to open our conversation before we move into a moderated discussion our first Speaker this afternoon is Jennifer Pierce she's the president of TC and nerjia Ms Pierce has an extensive background in the energy industry including power generation Gas and energy transportation born and raised in Canada she has also worked internationally with energy companies in Canada the us as well as Chile Argentina Brazil and now Mexico our next speaker is Jeremy M Martin he's the vice president of energy and sustainability at The Institute of the Americas in this role he has testified before the U.S Congress on energy issues in Latin America teaches a graduate course in Latin American Energy policy at UCSD and the University of San Diego and serves on the board of advisors for the inter-american dialogues energy advisor newsletter and our final speaker is Christopher Lenten he's the senior editor from Mexico and Latin America at Natural Gas intelligence he's covered Latin American Energy markets since 20 since 2009 as a reporter editor and analyst and prior to joining ngi he was a senior editorial manager at BN America's in Santiago Chile so without further Ado over to you Jennifer for your opening remarks well when I started good afternoon everybody uh Ryan Chris and Jeremy it's a pleasure to participate on this panel with you and I think it is a very timely panel and I think it's great that uh cesus has decided to focus on energy transition and the role natural gas can play in Latin America and Mexico particularly to advance not just the transition but to advance the economy and the social well-being of this very important region of North America we have seen the benefits of transitioning to more natural gas and what that is done in the United States as well as in Canada as we moved off higher carbon type energy sources for electricity and we actually see that happening dramatically in Mexico today TC energy has been in Mexico for over 30 30 years we have over 4 000 kilometers of natural gas pipelines in North America we move 25 percent of all the molecules of natural gas so we we we have a view on this and I think that we're participating in a very fundamental way across the continent in Mexico of course we have seen a predominance of U.S exports supporting the advancement of energy transition I think we would welcome more domestic more domestic Supply from pemex or from partners of pemex what we've started to see in Mexico early days is some strategic Partnerships very much what the CFE has been advancing and I think we not we talk about pemex as being a key participant in the advancement of more natural gas development in Mexico but the CFE has been a tremendous catalyst and I think that we look at a transition of sorts of uh we talk about President Lopez obrador perhaps not promoting gas development at pemex but I'm not sure he could do much more than is being done to promote natural gas development in Mexico through the CFE as a key anchor tenant see if he's using natural gas as a key input into their generation Fleet which I think is directly linked to be able to provide customers in Mexico today and future customers through near Shoring with the reliability the affordability and the sustainability they need for their fuel sources you cannot have an electrical grid as you need to support near Shoring which is n minus one reliability without a natural gas base load and I would suggest for everybody as Mexico builds out this natural gas base load generation they have not only cut ghg emissions by 50 they have reduced The Knocks The Socks and the particulate matter at the same time which is energy consumers are looking for that's a very sustainable proposition in addition to that we see that Mexico is advancing in other things to support grid stability and as the country has greater grid stability I think you will see greater and greater penetration of renewable energy sources but at this time in the country every megawatt of renewable energy you need needs to be backed up by at least a megawatt of combined cycle generation or other base load generation so as we look forward in Mexico I think you're going to see more natural gas I think you may see some incremental Partnerships with CFE such as we've seen with new Fort new Fortress energy with what we're seeing with formaca ascencia semper energy and I think we're starting to see Chemex developing some of these strategic Partnerships as well new Fortress energy is partnering with pemmix today to develop natural gas assets Woodside has a very large opportunity that they're looking to develop with pemex so I see quite frankly that there are some great investment opportunities where corporations such as mine and others are willing to rotate Capital into Mexico to partner with the CFE and potentially maybe pemex in the future to advance domestic resources and promote further North American integration of not just uh our natural gas but our electrical goods and our LNG Pathways to serve the rest of the world thank you very much Jennifer uh over to you Jeremy for your opening remarks unmute that's a good starting point thanks thanks so much and uh Jennifer pleasure uh glad to glad to be joined on the panel by Jennifer and Christopher uh two great voices uh from the media and of course a true uh implementer of infrastructure in the in in in Mexico and North America more broadly um Let me let me just try to marry and for those of you who didn't have the opportunity to see this wonderful framing uh notional question document that Ryan and his team put together and thank you all for the invitation by the way um but for those who didn't get to see this wonderful framing document they're an enormous amount of topics that really run a gamut and what I want to do is try to marry as many of those together as possible with sort of a a tale of of Back to the Future and going a little bit back in time um and and really what I I want to say is a tale of policy uncertainty and unclear goals and objectives for natural gas in Mexico that ultimately led to an import dependency choice so so many of you joining us know that over 10 years ago or about 10 years ago Mexico underwent a massive reform of its state-led energy sector as part of the overhaul interestingly though and what I want to focus on was there were voices at the time calling for a gasification strategy that Mexico needed as part of the overhaul and as part of the reform a gasification strategy that would indeed address the the the growing Gap in domestic deficit of natural gas exactly for reasons that Jennifer spoke to about the the evolution of the power sector from uh a a a less clean Source power generation to natural gas and eventually even more with Renewables um there there was a leading voice in that gasification of Mexico conversation and goal uh or at least discussion of putting it on the table somebody named Edward Edgar Rangel and I want to quote Edgar and may He rest in peace he's a wonderful uh was a wonderful friend cnh commissioner but at the time and why he said that Mexico should indeed consider a gasification strategy is it increasing domestic gas availability would facilitate the industrialization of Mexico so I think you know he was quite prescient I think it underscores a lot of the conversations that we're having today and in general right now uh about exactly how can Mexico continue to Avail itself of this near Shoring opportunity and where does energy fit in just exactly what needs to happen with energy um and again the the the unrealized goal back then of gasification was seen as perhaps a way to to uh harness what now we call the nearshorn opportunity but what they described as an industrialization opportunity of the country um and moreover pemex is evolution in into the gas world and whether it be a via a gasification strategy or the provider of Source Gas for for CFE and power generation in the country as well as industrial use uh was something that was you know part of this idea um unfortunately it didn't occur and the the reality is yes we can focus on the woes at pemex and and and the NOC is clearly uh to a degree culpable but I would suggest you actually what happened is more of a positive element that drove the de facto import dependency and that was the fact of the boomi Shale revolution in just the amount of capacity that the U.S had the the wonderful opportunity that Mexico had to to bring Imports of Cheaper U.S gas available gas that only needed infrastructure that companies like Jennifer's and semper and many others uh jumped in to help build and really consolidate that opportunity so it was it was certainly the the effort of pemex was obviated to a certain degree by its woes but I would suggest not just by pemex as woes but really by the sort of changing context of the Shale Revolution and the the opportunity of imports from the U.S and really also provide the U.S an important uh a valve of exports to Mexico um but I think now as we look at the current situation we need to realize that that to power this spike in industrial capacity but also to align more with Industrial Development and the investors uh ESG and Net Zero commitments that are really the ones who are uh uh you know lining up to to put into uh the the plants and parks in the makilas their investment this de facto natural gas policy is now needed to be reevaluated but more importantly the more uh concerning aspect of the overall management of the power sector and and what I could say is an incoherent overall energy policy in Mexico is something that uh needs to also be addressed more broadly um the other point I want to put on the table and this again marries some of the the elements that you brought forth Ryan and your team on this this backgrounder is the north-south Divide right and and really this boom in the north while at the same time in the South and of course I'm referring to Mexico uh has not been seen and I would say that part of this opportunity foregone with gasification in Mexico and particularly the role of pemex is both an opportunity to Supply Central America with some gas and and as that route and as that pipeline infrastructure would have been developed by Mexico to reach Central America Guatemala specifically you would have also seen the opportunity to to Really leverage a more secure and available and consistent source of energy and deliver energy security to those Southern States along that pipeline so I would suggest to you this this idea of gasification that surely was was obviated by the reality of the Shale Revolution but also had a major contribution to what uh occurred in terms of I would say the the Stark polarization between north and south or did not I I would would say help to alleviate any of those economic discrepancies that now we see so clearly and if we fast forward to to today you know there is a newfound effort of this government in Mexico to indeed really try to to bring Economic Development to the southern area and the transismus corridor which puts on the table a a huge industrialization Corridor uh a a slew of industrial parks railroad but also a gas pipeline and so again if we look at the Shadows that are cast because of what's not happened with Mexico's efforts to gasify or gasification by way of of pemex to solve that that domestic deficit we we need to better understand well what's going to be the difference this time with the transistmas corridor when it comes to uh being able to deliver in this case gas or or certainly more reliable in in assured energy sources there just to finalize I I do think though if we step back um and if we look at the broader opportunity in North America um there certainly is and Jennifer spoke to some projects that are being done some important Partnerships there are projects of recent announcements here in Baja California in Sonora that speak to Major developments that are are integrating and deepening the integration of natural gas and really providing uh opportunities for uh developers and and and and those who seek to export to whether it's Asian markets or solve part of the energy security crisis of the globe driven by the Russian invasion and therefore land more gas and LNG in Europe Mexico and in in North America and U.S gas and Mexico infrastructure really is a positive story that's developing so I I want to while I emphasize some of the foregone opportunities and some of the challenges that I think that's there's to speak to I do want to emphasize that there there really continues to be this this important opportunity and the final point I'd make on that is as part of the polarization more broadly the the politicization of energy is clear right I don't need to tell anyone here about what's happened with the energy policy debates in Mexico but but elsewhere across across the world right and I think the interesting thing is for whatever reason natural gas has not been as subsumed into this politicization in Mexico as a matter of fact the project in Sonora the the big announcement was led by the president himself some of these deals uh that have been announced to Partnerships but pemex the Partnerships with CFE and private companies have been talented by the president himself if not senior officials in his government so I would suggest to you that that again gives opportunity and space an area for developers and companies and governments and I think there's there's a true opportunity now to use this if we really concert our effort into what this means to also consolidate the near Shoring opportunities and deliver that reliable uh energy that Jennifer emphasized so let me stop there I I tried to marry a whole host of elements I hope it worked um but thanks again Ryan I hope I didn't speak too long thank you very much Jeremy for the comprehensive set of opening remarks over to you Christopher for your opening remarks yeah great um thank you Brian for this invitation and it's a real honor to be on this panel with with Jeremy and Jennifer uh he did a great job I think um setting me up um just a little bit about ngi we are a price reporting agency we've been around uh since the 1980s we published the first natural gas uh price table in North America in 1983 and we entered the Mexico market with the Mexico gas price index in 2017 which is a daily publication uh that I head up and our goal is just to further transparency in the in the Mexico natural gas market so I really wanted to talk about um energy security um and how that plays into to natural gas and the relationship between the United States and Mexico and natural gas I think energy security really emerged again as a major theme with Russia's invasion of Ukraine uh and it was principally a gas crisis I mean we're looking at um Nations that were too dependent on one supplier uh there were very serious consequences we saw industry shutting down uh inflation that still lingers to this day I'm based here in in Santiago de Chile and we had something similar happen to us uh in 2005 when Argentina shut off the gas and it also had very serious Economic Consequences and it was difficult for chile to keep the lights on and in many ways they had they had sort of developed their energy Matrix around this notion that the natural gas would be available from Argentina and if you look at the case of Mexico the dependence that Mexico has on on U.S gas is actually more than say Germany Germany used to Source about 50 of its gas from Russia Mexico import reports about 70 percent of its gas in the United States and when you add in the gas that pemex uses in its own processes you're looking at about you know 80 80 to even as high as 90 percent so the dependency is real but the argument that I would make is that natural gas um has actually helped energy Security in Mexico or or the integration with the United States in terms of natural gas has actually helped you're looking at uh about 24 importation uh points that Mexico now has uh you have bigger um uh natural gas pipelines with more capacity you have diversification of Supply not only in terms of Supply basins but also in terms of the suppliers themselves um we're seeing less critical alerts than you used to see you see more states with natural gas in Mexico so if we Define energy Security in terms of uh diversification I think Mexico is doing a much better job um as a result of its relationship with the United States there are still some issues CFE has a majority of the capacity on on the private pipelines and is very much the dominant uh sort of actor in in the market and that is something that some participants complain about but I think there's also um you know it's a relationship that works on both sides Jeremy mentioned this as well U.S producers um you know the Mexico Market is a natural is a natural outlet for natural gas that U.S producers use and there's there really isn't a threat that the US government will do something you know similar to what Russia and Argentina did simply because you have all these numerous private agents that are involved and not only producers but also Midstream companies particularly in places like the Permian Basin where you have you know production that is is booming and you don't have enough takeaway capacity I mean at the waha Hub in the in the Permian we've seen negative pricing in the last couple of years which means that they're actually paying uh you know people to off take their gas um so again Mexico is a is a real sort of a natural outlet for those producers you know Lopez obrador came to power talking about and Jeremy touched on this talking about energy sovereignty and energy Independence and yet natural gas we're seeing deeper integration uh when he came to power uh the U.S was exporting about five BCF a day on on the pipelines to Mexico now we're looking at about seven BCF a day and then you know with near Shoring and with the CFE combined cycle plants and with the LNG projects that are being developed that that figure could easily grow another two or three beats yesterday in the same time frame so we're looking at deeper integration and not less integration as a result and I think partly that's to do with the fact that amlo is a he's an oil guy and natural gas is in many ways uh sort of been forgotten about if I could just make one one final point the iea also mentions that part of energy security is energy pricing now last year Energy natural gas pricing uh was was highly vulnerable we saw Henry Henry Hub get as high as ten dollars per mmbtu natural gas was the most volatile commodity in the world um and yet this year we've seen a complete reversal Henry Hub has returned to a place where it was for many many years very stable very cheap under three dollars per mmbtu if you look at the forward strip Henry Hub is going to you know we're seeing it get to three dollars and fifty cents by next winter but probably back down to three dollars by by next summer again um a Houston Ship Channel which is for whatever reason what most Mexico contracts are based off of we see similar pricing and waha you actually see a gain of about 50 cents and so you know there's a lot more natural gas coming from west west Texas because of those pricing advantages and so Mexico really isn't a great position um cheap affordable energy and um I think the government is really um on board with with using natural gas it's it's the main field the United States it's the main field in Mexico in terms of power generation and I don't see that changing in the short term so that's my bit for now thank you very much Chris uh as well for those those very comprehensive opening remarks so there's a lot to unpack here you all have put a lot on the table and we could take this in in any number of of directions uh but I want to start with something very basic and that is something that's near and dear to Lopez obrador's heart um it's what makes him tick he thinks a lot about the south he cares a lot about the south uh and he's from a Southern state so uh just start on on the very basic uh building block element you know how does energy access factor into these diverging development stories that all of you have mentioned and touched on in your opening remarks and what efforts are currently underway to increase energy Security in the southern part of the country first and I'll start with you Jennifer and go around in the same order well perhaps perhaps for obvious reasons um so you're absolutely right uh the president has prioritized the South it's very strategic it's very important to remove the gap between the North and the South we all know how prodigious North America North manufacturing is in Mexico uh and it's really unfortunate to see The South was left behind and so the priority of this Administration is really about social advancement and we are fortunate enough to be a partner with the CFE in bringing natural gas to the South we are constructing with them a a 715 kilometer pipeline majority of it is offshore it will Connect into the took span pipeline system and it will bring low-cost reliable natural gas to the South and we know from economic studies that have been done that states with natural gas have a 50 higher GDP than states without natural yes and we can we can point to very specific examples at the federal level at the state and local level where their governments are advocating very actively to bring industry to those economies to bring Industries to those States you know in our project alone we will employ directly over 4 000 people to construct our pipeline that's just the start of it and what these individuals will gain are skills that are easily translatable into manufacturing-based jobs uh I think we're going to see some relocation of manufacturing rules into the states of Veracruz into the state of Tabasco farther south as as these state governments really advocate for economic development and I think that you'll see everything from Automotive to digital economies to fertilizer to LNG export which will be able to to relocate and participate in new economic opportunities because they'll have low-cost reliable electricity which the CFE is building because it is a massive build-out plan in the South and then also they'll have direct access to natural gas which they can use for their manufacturing processes and so we know that this is just one of the things this Administration has been doing to bring Economic Opportunity the transitional Corridor is another significant economic program of this Administration and I think it's extremely strategic and very Democratic to try and do that so that they can start to integrate the North and the South and not have a further Rift as populations in the southern part of Mexico don't get to participate in the tremendous Economic Opportunity the country has to offer at this point in time thank you very much Jennifer I did not know that that figure on access to natural gas and and GDP uh so that's a that's a very interesting takeaway uh Jeremy over to you so uh the role of of natural gas in an energy access in this story this unequal development story in Mexico and and sort of what the administration is doing to continue energy Security in the south no no absolutely and I you know I spoke a little bit what I called an opportunity for gone by the kind of pipeline infrastructure Jennifer and their company together with Mexican state power company CFE are building out being this opportunity foregone because of a lot of those numbers and those kinds of numbers maybe not exactly the same but were the kinds of numbers that folks talked about several years ago and why perhaps that pipeline the Guatemala shouldn't have been just the focus of drink bringing some some Mesoamerican integration but rather exactly the point of what that could have meant for Reliable secure uh energy supplies for the southern states of Mexico okay so we're playing catch-up now right and and I think that's the point so can this government with its little time left continue to be able to implement and deliver the kinds of projects that CFE with Partners or CFE alone can deliver the transismus corridor is is absolutely uh a Cornerstone I I personally would have liked to seen that if it was truly a Cornerstone of economic development for the South I'd like to have seen that in the first year of the administration Jennifer's pipeline the first year of the administration we don't want to go back to the first couple years of the administration I know however the point being that there was a lot of time lost and I think the ketchup element is something we have to recognize now can we catch up we the Royal weekend Mexico and and can they catch up and solve this this polarization can they solve this economic polarization um I don't know thanks very much Jeremy uh Chris your thoughts on this topic yeah if I could just Echo what Jeremy said I mean the the key part for me is that uh the planned pipeline from from Veracruz over to Oaxaca we haven't seen uh much movement on it we haven't seen a tender um and it does seem pretty late in the Lopez open the lower Administration and that would be fairly key to getting gas to some of those Southern States I will commend you know uh the efforts of TC energy and the extension of the The Dr Marino uh NG uh you know Dublin capacity on the Maya Khan so there have been there have been um serious movements to to improve gas capacity in in that part of the country but uh we haven't really seen much by you know in terms of advancement on the uh the inter-oceanic um pipeline thanks very much Chris uh so my next question I want to get a very specific about sectors and about about Industries um you know we often talk about the near Shoring opportunity like writ large like this this large thing without necessarily getting into a sector by sector approach and and I want to ask a very specific question about which Industries um you all think would benefit them most from stronger natural gas in Mexico I'll start with you Jennifer if we can get sector by sector specific uh to provide listeners with a very concrete idea of what's at stake here yeah so uh the number one sector everybody's watching right now is LNG exports uh that's a sector that's going to benefit tremendously from pipeline access and the ability to move natural gas from the United States and and I don't know about you but I'm not worried about United States productivity on natural gas there's a ton of upside happening and they continue to develop more of it more economically than anybody else in the world um we also see Automotive we spend a lot of time with state governments I'm so impressed by the work the state governments do here in Mexico to promote Economic Development so it really depends on for example if you're in the central region you're going to see Industries related to Automotive to Aerospace to digital economy opportunities to everything from you know medical devices in the Southeast we're seeing again Automotive we're seeing fertilizer we're seeing LNG exports we're also seeing people that want to co-locate even renewable development of manufacturing components so we see the componentization of traditional industries that have come to Mexico I think we're going to see more componentization of electrical vehicles I mean Tesla's gone to Nueva Leon but there will be a lot of suppliers two the um the electric car that will co-locate or locate in other jurisdictions where they do have that reliability where CFE is developing their power generation assets where CFE has very strong transmission access so I think you will see the traditional Industries here in Mexico doubled down you are going to see industries that have perhaps located outside of North America I.E Mexico bring manufacturing back to Mexico and I think you will see a number of Asian participants locate Industries in Mexico to feed Automotive Aerospace some of the other industries that I've spoken about fantastic thanks Jennifer Jeremy any sector-specific areas you'd like to highlight yeah actually let me let me start with geography because uh you know I'm based here in Southern California and right across the border for Baja California and there is a real need for the industrial capacity to have uh additional supplies of gas there has to be increased capacity delivered here the the growth of of whether you call it near Shoring or the industrial capacity that has existed here um since early NAFTA days is something that needs more gas so geography I think you know and and obviously the question of of Sonora and bought a California being those specific uh terminals to hit the Asian market for the LNG that that Jennifer highlighted um but coming to the coming away from the geography to the sectors I Automotive I think is is the is such a crucial one obviously in certain geographies of the country the more agricultural focused and the and the inputs for agriculture whether it's fertilizers those derivatives but then in in some areas where there's heavy industry like cement and steel I think the role of gas in making sure that there is the continued access to the the classic definition of reliable secure and affordable supplies in those Industries and particularly thinking of you know Nuevo Leon so that's where I would leave it thanks very much Jeremy uh Chris over to you yeah so I think you uh Jeremy and Jennifer touched on the major industries but what is needed to power those Industries is the electric power segment uh cfv has really uh gone all in on on natural gas uh fired power plants and combined cycle 60 of the energy Matrix is now um based on natural gas-fired power plants uh CFE is developing a couple more gigawatts of natural gas fire uh CFE is one of the major North American uh natural gas marketers with its subsidiary CFE International in the United States and it's made it very clear that it wants to increase demand for natural gas to basically fill up a lot of the capacity it has on pipelines in Mexico and so the electrical power segment I think will continue being a major Drive driver of natural gas demand thanks very much Chris uh before we move into our our q a part of of today's uh event um I I want to remind viewers you know if you've got questions that have come to your mind as you've been watching our event thus far you can either put them in the Q a box here on the zoom where you can click on the ask live questions button on the event webpage I want to ask you all um a question about the elections that are coming up we've got elections on both sides of the Border in 2024 it's something that happens once every 12 years given Mexico's sixenio and the U.S presidential mandate lasting four years we have an alignment every 12 years and we have that in 2024 we at csis America's anticipate that energy will be part of that overall campaign the discussion in Mexico in the Mexican context how do you all think energy is going to be discussed in the 2024 presidential campaign what should the candidates be thinking about and talking about as they gear up for the election cycle and Chris I might start with you and then go in reverse order this time um yeah so obviously a huge issue I think in the previous presidential uh cycle energy emerged as one of the most important uh issues and I think it remains to to this day um extremely important obviously the energy transition has sort of not been talked about during this xenya and I think it's something that needs to be talked about uh Claudia scheinbaum has uh brought up uh this idea um but I but I think natural gas again is uh extraordinarily important Mexico needs to focus on not only on on you know its relationship the United States but on developing its own resources I spoke to c h commissioner Hector moreda recently and he seems to think that um the oil and gas rounds that were suspended by amlo need to be reinstituted and so I think that's that's going to be part of the discussion as well you know some of the major changes that happened which ones worked which one didn't which ones didn't and and how can Mexico improve its uh its natural gas um uh production domestically thank you very much Chris uh Jeremy well I always like to say energy is political and policies politics that's sort of my uh catchphrase I probably repeat too often but there it is and and so yeah no there's a there's an absolute intersection as we saw and the the next part of that that catchphrase is really how do you implement campaign rhetoric into policies right and I think that's what we've seen um with the Lopez overdore Administration so the question now will be what kind of campaign rhetoric we still need to get the candidates for for the various uh parties or or groupings uh set and then once we start to hear the campaign rhetoric to start thinking about how can that campaign rhetoric be translated into actual policy developments it was not you know some of the really really strong campaign rhetoric of the Lopez obrador uh uh you know that the race he ran and you know very successful race he ran um didn't ultimately get translated right the famous the famous Easter day to defeat of the the major power sector overhaul constitutional reform didn't happen so point being that a lot can be said in the campaign and it does not always uh translate the policy developments the final comment is that there will have to be some kind of pragmatic uh I think approach to energy whether it's restarting bid rounds whether it's restarting the auction process whether it's taking a deeper look at why CFE continues to burn so much fuel oil um when it should be whether it's turning to more gas or whether it's deploying more Renewables the one thing I've always thought that was crazy is this this war on Renewables that people call uh the current administration of Mexico launching or or using there's no reason CFE couldn't be one of the most important developers of renewable energy there's nothing that that would you know constrain them and it would allow for the Primacy of the state Enterprise to be the the deployer of major Renewables now we do see a little bit of that with Sonora and the Sonora plan but again my earlier comment is it too late is it enough um and so I think what you're gonna have to see is a bit of ketchup again the next Administration and therefore whoever is is is taking over and residing in Los Pinos is going to have to be more pragmatic and really probably return to some of the market-based elements that this Government tried to if not slow down overall in overturn thank you very much Jeremy Jennifer so I think you're going to see from whoever the candidate is a few couple of things availability availability is going to be really important do we have the energy we need to sustain the growth to attracting your Shoring affordability you got to be able to afford it because Mexico has to be competitive right and I think sustainability I think the next Administration is going to care a lot about the sustainability elements and carry that through so I think those are three principles that I think you're going to see regardless of the candidate I think you're going to see a sustainment of bringing energy to the southeast we have to bring the southeast forward and I think the next Administration will carry that through and it'll continue to be a priority I also think you're going to have to see investment stability we talked about the pragmatism um I don't think Mexico's Hacienda has to finance everything I think this administration at least in the last 12 18 months is demonstrating an ability to partner to find strategic Partners to find people that see a value in that relationship and that will enable the government to have a a piece of the action a piece of the equity nationalism is very important but then have Private Industry that can leverage their balance sheet and international financing to come and make those Investments because they do not think Hacienda can sustain and backstop everything it's not practical it's not pragmatic and it's not competitive so I think the next Administration will perhaps carry that through to look at some more strategic Partnerships so that you can you can have a win-win and so I think those are some things that you might see in the next Administration thank you very much Jennifer I I want to bring up one more question before we move to our q a portion and I'm glad to see that we've got some questions populating in the Q a here on Zoom um it's been mentioned throughout our conversation how uh gas plays a role is not just a bridge but also in some of the Renewables that Mexico could become competitive in and I want to ask a question particularly about natural gas as an important feedstock for certain forms of hydrogen particularly blue hydrogen which is something we've done a little bit of work on at csis America's um what what do you all assess the potential is for for hydrogen uh in in Mexico how does the gas industry in Mexico think about hydrogen as a next stage potentially in any energy transition um and Chris I'll start with you again and go in the same order as last time I I think it's still very very early days for for hydrogen um we have seen some advances in in RNG in in biogas I think the hope is that um a lot of the infrastructure that has been built and it's quite significant and it continues to be built can be used for potential um hydrogen uh blue hydrogen or whatever color hydrogen down down the road um I do think it it potentially could be very hard to compete with with countries like the United States where you have you know the IRA that make it uh you know highly um attractive to develop uh north of the board of the United States and so in that sense it will be difficult for Mexico but it's very early days but of course um I think everyone's looking very closely at hydrogen thank you Chris uh Jeremy not to be really negative here but it will allow me to be very concise Mexico has no near-term opportunity for hydrogen Beyond whatever industrial uses may be happening we'll see if uh with with pemx sorry I I see everything that Chris says about the competitiveness that will be only enhanced in the coming years in the US because of the ra I don't see a near-term reason for Mexico to dabble in hydrogen Jennifer do you see the same as Jeremy and Chris yeah I I agree I don't see the near-term reason either I do see that longer term they'll have the infrastructure um you know Mexico can be a fast follower they don't have to to pile it they don't have to do a demonstration here I think let's let's build out the grid let's Electrify where we don't have electrification let's decarbonize and then let's use our money very wisely and then LeapFrog when the technology advancements have been proven out and there's a there's an economic and a a fundamental reason to advance beyond that fantastic thank you Jennifer I want to move into our q a portion now so that we have enough time to address some of the questions that are coming in again if you've got a question you can put it into the Q a box in Zoom where you can click on the event webpage where it says ask live questions and input your question there the first question I'll propose I'll pose rather to the entire panel and it is from sonal it's will Mexico go ahead and ship gas to Southeast Asian markets what about fuel diversification into Renewables well we discussed a little bit just now about about hydrogen but feel free to address other Renewables as well and Jennifer I might start with you and Ingo in the in in the other order yes so I I do think you'll see Mexico ship uh LNG to Asia there's a competitive Advantage for them to do that and I do see that there will be more advancement of renewable energy we're already seeing deal flow pick up right now uh so I do think that you'll see where there's where's the need where there's the opportunity where's there's where there is the transmission stability this is really important I think that one of the reasons perhaps we saw a bit of slowdown um was also grid stability you need to be able to interconnect and you need to be able to have voltage support to push electricity around the grid and I think those are one of those that's an element that the CFE certainly was considering but I think we will see as the reliability of the existing system improves with the gas generation that's being built and expected to come online in the next two to three years I think we'll be able to see more Renewables enter in the market because they'll have the backup Supply to do that thank you very much Jennifer Jeremy yes Mexico will absolutely land LNG not perhaps its own domestically developed molecules but it will via its infrastructure on the Pacific Land Land LNG in the Asian markets um not going to bet on which project will be first but it's going to happen for sure the the question and I think coming back to someone we just talked about in Jennifer made a great point the countries that I would suggest are going to be Movers On on particularly green hydrogen those that have a decarbonized or almost decarbonized power sector and have the ability to harness um their renewable capacity to move into the hydrogen space which is is important to understand why I commented earlier why didn't think Mexico will or can in the near term but what that also speaks to is Mexico's need and and Jennifer also spoke this about the next government Mexico's need to to approach its energy sector and particularly its Electric System in a way that is able to bring more Renewables to to marry with the gas that that base load and to really bring more Renewables into the mix right whether it's CFE whether it's Partnerships whether it's tenders whether it's the auction process once again there's no reason no reason particularly northern Mexico but most of the the country whether you're talking wind or solar but the north with solar opportunities there's no reason Mexico shouldn't be one of the world's leading renewable uh uh you know developers and uh deployers of renewable energy in its Matrix yes the reliability of the grid and the need to enhance infrastructure well guess what that brings me back to the point of tender Partnerships that were uh tender Partnerships for for transmission expansion tender Partnerships for for grid reliability projects um those are to me obvious on the table for the next government to consider yeah let me just speak quickly to um the LNG part in June 50 of all U.S LNG shipments had to go around the Cape of Good horn because of congestion in the Panama Canal and low water levels and that really gives a huge advantage to these these West Coast projects in Mexico not to mention they're going to get waha gas which is the most affordable gas um on earth almost and um is coming online um early next year you have MPL with a lot of a lot of Mexico Pacific London with a lot of commercial momentum and so we do see some of these LNG projects certainly going ahead um and um yeah I I'll leave it there thanks very much Chris I have two questions in the in the in the question and answer box specifically for you Jennifer uh they're they're directed at you the fir and these are these are from Andrew Baker the first is when Southeast Gateway enters service how will it impact the utilization rate of the Merino pipeline will the Merino system need to be expanded that's question one and number two is does TC energy plan to participate in LNG exports from Mexico's Pacific Coast so you've got a bunch of stuff to to address there sure well for the first question the first question um you know at this juncture relative to the capacity on the sort of Tejas which brings gas from from Texas to in through to expand we're not anticipating that we'll need to expand sort of Tejas at this time but as we see the transducal corridor developed as we see perhaps um LNG exports out of cuatsaquelcos as we see the Maya can come online in demand growth into uh into the the Yucatan Peninsula there is the ability to expand it to a degree um that will be up to CFE I mean we talked about CFE being the predominant holder of capacity they're the underwriter of all this capacity so that's why they're the predominant holder of the capacity and again um you know it's very interesting I think that you we've we keep talking about chemex's role in chemix is a very very important role in domestic resource production but I would say looking toward the future CFB has a really significant role in the electrification of the country in the movement of gas they really underpinned the infrastructure being developed or that has been developed in natural gas and so I think that um you could see the expendability of sort of Tejas in the future but it's not right now and are not required to bring Puerto Celeste online by 2025. the second question was Will TC energy participate in LNG export we will certainly ship as much gas to LNG exporters as they want uh you know we look at the Pacific opportunities uh we see um Tidewater off of the manzanillo bay where we have the The manzanillo Guadalajara pipeline which also connects into the essential system which brings gas right from the Permian of course we've talked about new Fortress energy will be shipping gas to Central America and potentially Europe this fall they've interconnected into sir to Tejas so as we you know I think we're one of the largest connectors into LNG exports in the United States and of course we're completing our Coastal Gas link pipeline which will ship um gas to LHC Canada so again as a major infrastructure player um you know we are moving a lot of gas for export and we'll continue to facilitate that in Mexico thank you very much indeed Jennifer for that very detailed answer there's a great question that's come in uh from the the live webinar and it's about Mexico's storage capacity for LNG and this is something that we we didn't get to discuss but I think it's worth us discussing this the question is one of Mexico's biggest challenges seems to be its lack of storage for LNG Mexico has just over a two-day storage capacity whereas countries like Spain and Germany have upwards of 30 days how can Mexico improve its storage infrastructure and uh Chris I might start with you and then then Jeremy then Jennifer yeah so Mexico I had an energy storage plan in place with the with the previous administration um and unfortunately nothing has really happened on that front and we saw some of the impacts of the potential impacts of not having storage during winter storm Yuri when uh natural gas supplies were squeezed in Mexico in 2021 um there has been momentum recently to Tender the jaff field and the Brazil field which would um you know provide I forget the the figures but a couple more days of of natural gas I mean the Brazil field is absolutely massive um but we again we've heard about the tender but we haven't seen uh concrete steps toward it but that would obviously um be something that would be very beneficial to energy Security in the Mexico Market thank you very much Chris Jeremy I know that imco did a did a great study looking at just this exact topic um so I would just direct people to that and if you want to get a little deeper dive into that question and then I'll allow experts like Jennifer who actually build infrastructure and can actually speak to this a lot more than somebody who focuses on geopolitics and the intersection of policies in energy so uh I'll I'll let Jennifer really answer this one thanks Jeremy and uh for those who who don't know the acronym inco it's the the Mexican Institute for competitiveness Jennifer so I think storage is going to become a more important component of Supply diversity in Mexico I think you're going to want to have Advantage for that not just because of LNG but because you can have a bunch of natural gas-fired power plants um utilization across everybody's pipeline system is increasing because demand is growing in the country and it will be harder to line pack right because you're going to have the pull so I would sug I would I would expect in the next five to ten years you'll see a more uh purposeful call for storage um backstopping perhaps of storage from large Market participants maybe CFE uh maybe LNG providers and so I think you'll see that senegas has talked about it for quite some time I think it's just a natural I mean CFE is the and obviously I talk about them because they're my client but I think they're the eighth or ninth largest utility in the world it's just part of prudent management when your long gas and your pipelines are full you're going to need something else there to manage your your optionality to manage your reliability and I think again it's I mean it's just the evolution of this Market it's the maturity of the market and you're going to see it and and it doesn't it's not evolving particularly differently than other North American markets and so I think you're going to see this there's storage that's underutilized today and um so again I think in the future as pipelines become with higher capacity factors and utilization you're going to need something to give you that optionality and reliability thank you Ryan could I jump in I just want to ask Jennifer because what I always am curious about is the US there's so much that we talk stories underground storage right because obviously what you folk focused on was the infrastructure side of how much infrastructure storage does that give you what do you know about and I request you as well sorry to jump in but I'm curious about Mexico's underground and that kind of uh that those kinds of storage options yeah so Chris probably has a map but there are reservoirs and uh option there's option there's options across the country in different locations uh where you can have um you know underground storage and so the technology is is quite Advanced relative to your injection and your withdrawal rates uh you just need a back stop and a contract uh so I think the res the the infrastructure or excuse me the reservoir base is here that you could do that I think you just need the commercial construct uh in order to advance that and you need that when someone believes it's important enough to have it Chris yeah I agree as I mentioned you know the energy Ministry and senegast during the previous administration did all sort of the the leg work and the the fields have been identified that can be used for underground storage it's a matter of investment at this stage fantastic that's a that's a great point to add on to the question no thank you thanks very much Jeremy so uh there's one more really really good question if I can stretch our time for just a few more minutes uh our time together for just a few more minutes and it's about uh it's about people uh we've been discussing throughout the hour about how natural gas affects Mexico's developments economic trajectory and and we've we've kept focus on on people and make sure people have better lives but there's a question that we we had come in about uh people who feel strongly in the in the other direction and it's we've seen protests and mobilizations against pipelines in particular in the U.S and in Canada um has there been a similar outcry in Mexico part one of the question part two of the question how can natural gas companies manage this in their planning and deployment of critical pipeline infrastructure and Jeremy I might might start with you on this one because it's about it's it's about risk and it's about you know political risk and and and yeah and pipelines I'll start with you and then I'll give the others a chance to weigh in yeah well no there absolutely have been issues there's there's there's one in one major pipeline in particular where there have been you know uh certain certain communities that have you know protested and and basically tried to challenge that that development or final implementation so um absolutely I mean there there is the famous social license to operate we haven't yet after an hour put that on the table but there there is the the question of how can whether it's a government whether it's a company whomever who's developing major infrastructure gained the input and the social license from the communities where they will pass or where their infrastructure will be built and developed um to be able to to move forward with those kinds of projects and that is increasingly complicated right because there are oftentimes complete asymmetry and and there's not alignment um as to what one community may wish have it in terms of what its desires that there need to be to address compared to other communities in certain areas in Mexico you have questions around water in certain areas of Mexico you have questions around ajitos you can go on and on but the point is it is it is a a very complex and the only thing I would I would add is it means that companies and the government too are all in this together when you seek to build the kinds of hundreds and hundreds of kilometers of pipeline or the kinds of LNG infrastructure that we're talking about here right so this needs to be a concerted effort of not just the industry but government as well and communities and everyone you know trying to find what is the right balance into really trying to find the point of equilibrium so that there can be those economic opportunities delivered but at the same time that the communities have the ability to give input and not just have projects or developments forced down there uh their proverbial throats right thank you very much Jeremy that's great uh Chris would you like to weigh in and then I'll let uh Jennifer have the last word yeah no just very very briefly I think the solution to a lot of the protests against pipeline development has been what Jennifer has mentioned these public-private Partnerships where the government um has really helped out um and has worked together with with the private sector companies and the communities and sort of um trying to highlight the the potential benefits I think in in terms of Mexico more so in the United States it's about affordable uh energy and um and and energy security um and I I would make the argument that developing natural gas pipelines and really the natural gas industry is really a history of pipeline development it's very you know getting natural gas to Market is far more complex than than in the case of oil I would I would make the argument that's easier in Mexico to go to develop natural gas infrastructure these days than it is in the United States thank you very much Chris uh Jennifer the last word over to you yeah I I would Echo Echo what Jeremy and Chris and Christopher said um it is an easy development infrastructure anywhere to be frank uh it's hard and uh you know when we made the decision to put more money into Mexico a significant amount of money what we had to have um confidence is not just about fundamentals we had to have confidence uh that the president of the country that Mexico really wanted this right and that we had a commercial Arrangement such that there was adequate risk sharing now why does that how does that relate to communities um because of the private partnership there is an alignment with what's in the interest of Mexico to develop this infrastructure this is critical all these pipelines not just our pipeline but the Maya Camp pipeline um you know the pipelines that are being developed are first generation Pipelines they're in the National interest and you know our obligation is to create trust and to be open and transparent and try to build that bridge with a community to honor our commitments that we make to a community because the benefits to a community are not just in the purchase of land but it's in the social investment that comes with that it's with the job creation I mean I mentioned before we're building portal cereste 4 000 direct jobs I've I've been out to the communities I've talked to the people working on our pipelines and for them this meant they didn't have to leave their family they could live in took span and have a good job right that's that matters to people and so these are the things that we need to continue to do a better job talking about continue to honor those commitments and and to be very Frank when it's challenging to build pipelines in a community it's usually not the Community member that's challenging you it's somebody from outside the community that doesn't have necessarily the interest of the nation or the interest in that Community but some other bias that creates The Challenge and makes it really hard um but we're committed to learning from every project and we think there is a tremendous amount of opportunity to do a lot of social good here by investing in natural gas infrastructure in Mexico so we hope we get to continue to do that and working with CFE to to realize those ambitions thank you very much all of you I'm conscious of the fact that we're over time so thanks for for sticking with us uh this has been a fascinating discussion it's been a very wide-ranging discussion and as Jeremy mentioned about our our notional questions and the concept memo that we sent over there are any number of areas that we could we can discuss and so it's it's safe to say that csis America's is going to continue its its research efforts in this space but for now we have to leave it here thank you so much Jennifer Pierce president of TC energy Jeremy M Martin vice president of energy and sustainability at The Institute of the Americas and Christopher Lenton the senior editor for Mexico and Latin America at Natural Gas intelligence we really appreciate you taking the time to be with us today thanks very much thank you [Music]

Channel: Center for Strategic & International Studies

Views: 2,057

Keywords: Center for Strategic and International Studies, CSIS, bipartisan, policy, foreign relations, national security, think tank, politics, Americas, North America, Energy and Sustainability, Economics, and Trade and International Business, #Webinar

Id: 1UzC6ZZw1Zs

Length: 64min 41sec (3881 seconds)

Published: Thu Jul 27 2023