When Gov. Greg Abbott cut off natural gas that usually flows from Texas to Mexico on Feb. 17, the hoped-for result was meeting Texas’ skyrocketing demand and dwindling ability to supply it during the worst winter storm in decades.
“I hereby mandate that all sourced natural gas be made available for sale to local power generation opportunities before leaving the state of Texas, effective through Feb. 21, 2021,” Abbott wrote in a letter to the Texas Railroad Commission, the state’s energy regulator.
The order had both immediate and longer-term consequences for Mexico, highlighting the country’s dependence on Texas natural gas.
Close to 5 million people in northern Mexico suffered outages and blackouts in the following days. Mexico relies on U.S. imports for about 65 percent of its 7.6 billion cubic feet a day of natural gas consumption. That number is expected to grow 20 percent to 9.1 billion cubic feet a day by 2025.
Free market champion Mary Anastasia O’Grady argued in the Wall Street Journal that the size of Mexico’s market alone and its current consumption of natural gas should have given it more consideration, even at the expense of Texas’ own power-starved residents.
O’Grady further noted that the politics of the cutoff have played well to a vision that populist Mexican President Andres Manuel Lopez Obrador has long been promoting: a Mexican return to energy self-sufficiency.
Or more aptly, increased reliance on and dominance by its state-owned oil and gas company, Petroleos Mexicanos, or Pemex.
To put these maneuvers into context, it is necessary to go back to decisions made by the previous investment-friendly and establishment-oriented Pena Nieto administration. In 2014, Mexico passed a slew of legislation to open its energy sector to competition as it tried to clip the wings of Pemex, which has a huge labor force, some of the country’s most powerful unions, and historically close ties with the country’s ruling elite.
Since his election at the end of 2018, Lopez Obrador has been working to reassert Pemex’s dominance. To this end, he has argued that hydrocarbon-fired power from state-owned utility CFE should be providing the country’s electricity. It will mean effectively leaving the renewable energy companies – many of them private and international players – at the back of the power-selling line after having invested millions of dollars.
And while two-thirds of Mexico’s natural gas has been flowing from Texas, the storm and Abbott’s decision have given Lopez Obrador an even stronger platform for attacking the country’s fledging renewable energy industry — especially that funded privately and, worse yet, by foreign entities.
“Gov. Abbott’s decision provided a very good argument for AMLO’s energy policy,” said Rosanety Barrios, a former senior Energy Ministry official who was one of the chief architects of the previous energy legislation. “His objective of energy sovereignty has a new argument against natural gas dependence.”
In the three weeks since the storm, Mexico’s Congress has passed legislation that favors state-owned natural gas, fuel oil and diesel generation, requiring its grid to use this power first, regardless of cost. The rule, which undermines the 2013 legislation and is already being challenged in court, makes it much more difficult for renewable generation or for private plants to survive as part of Mexico’s grid.
And while Lopez Obrador has been pushing in this direction with many earlier decisions, he was able to effectively campaign for the new law using the Texas cutoff as part of the justification.
Yet aside from what the return of a more powerful oil and gas monopoly means for Mexico politically, the president’s decision not to diversify the country’s power supply is shortsighted. Worse yet, his solution does little to address one of Mexico’s biggest problems: Where is it going to get its natural gas in times of trouble in Texas?
For while Lopez Obrador ran on oil independence from the U.S., his administration has not pursued options for self-sufficiency in terms of natural gas, even though the nation is blessed with ample resources.
One of its most obvious potential resources would be to use the natural gas productively that Pemex currently flares, according to George Baker, editor of Mexico Energy Intelligence.
“Better investment in gas management would have provided gas to customers instead of being flared,” Baker said.
Pemex flares more than 500 million cubic feet of gas daily, up from 305 million in 2019. These numbers are expected to grow as the company pushes for more oil production while leaving significant gas processing and gathering issues unaddressed. The flaring represents almost 10% of the 6 billion cubic feet of gas Mexico imports from Texas daily.
Natural gas storage – specifically, building some – has likewise been woefully neglected in Mexico.
“Despite its having been made open to private investment since 1995, there has been 25 years without any investment in gas storage,” Baker said. “It has left the country’s electricity and industrial base vulnerable in case of an extreme incident such as the winter storm.”
Lopez Obrador has also rejected the development of hydraulic fracturing in Mexico, even though the nation has rich gas potential in the northern Burgos and Sabinas basins. The Burgos basin holds the largest undeveloped shale resources in the country and was identified by the U.S. Energy Information Administration for its capacity to reduce Mexico’s reliance on natural gas imports in the long term.
Part of the problem is that Mexico’s current administration has no overarching natural gas policy, even as the country becomes increasingly dependent on it for both industrial production and electricity, according to Jose Maria Lujambio, an energy lawyer and former senior regulator (2009-2012).
As a result, investments not made by the private sector, such as natural gas storage, have not been taken up by its state-owned company, Pemex, despite the obvious energy security concerns. Some of Pemex’s reluctance is understandable, given its $110 billion and growing debt, which has made even critical investments challenging.
Even so, driving business back toward the country’s state-owned natural gas power plants will do little to curb its growing dependence on Texas natural gas.
And discouraging private investors from developing its rich solar and wind resources will only make this dependency the more painful, should push come again to shove.
Emily Pickrell is a veteran energy reporter, with more than 12 years of experience covering everything from oil fields to industrial water policy to the latest on Mexican climate change laws. Emily has reported on energy issues from around the U.S., Mexico and the United Kingdom. Prior to journalism, Emily worked as a policy analyst for the U.S. Government Accountability Office and as an auditor for the international aid organization, CARE.
UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.