Without Natural Gas, Nearshoring in Mexico Flops, Experts Say

By Christopher Lenton

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Mexico could boom thanks to the new global economic system, and natural gas will be key, according to experts.

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Speaking Tuesday at the U.S.-Mexico Natural Gas Forum in San Antonio, TX, Guillermo García Alcocer who handles planning at Instituto Tecnológico Autónomo de Mexico (ITAM), said without greater access to natural gas, the so-called nearshoring opportunity would be “limited and regional.”

Nearshoring is the buzzword today, and it is the process by which North American companies are relocating their factories and supply chains to Mexico.

García Alcocer formerly served as the head of the Comisión Reguladora de Energía (CRE) and is a respected expert in the Mexico energy industry. He said “not one” project related to nearshoring has been announced in Mexico states without natural gas. 

“There needs to be a plan to get gas into those states,” he told the audience. 

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The ITAM executive stressed that China is losing ground as a trading partner to the United States, but not all of that loss is being picked up by Mexico. 

“It is important to have location, but the most important thing to have is rule of law, infrastructure and human capital,” he said. “That is the opportunity we could have in Mexico.”

García Alcocer said the data proved that natural gas was important to Mexico. Between 2010 and 2012, he noted that Mexico lost one-quarter of a percentage of growth in each year because of a lack of natural gas. That spurred a $16 billion buildout of pipelines to move gas south from the United States.

“There is a very close relationship between natural gas and development in Mexico,” he said.

Growing Reliance On U.S. Gas

García Alcocer predicted Mexico’s gas  production will begin to gradually decline from its current figure of around 4.3 Bcf/d. He cited projections from former Commissioner Alma América Porres Luna of the Comision Nacional de Hidrocarburos (CNH), who has said Mexico production would decline to as low as 1.5 Bcf/d by 2030.

The former CRE chief said “there will be a growing reliance on U.S. gas in Mexico.” The country currently imports about 70% of its natural gas needs from the United States. “But that’s not bad,” he said. “I think we can make a very interesting partnership in natural gas in Mexico and the United States.”

However, Mexico still needs to work toward developing its vast unconventional resources, García Alcocer said. Not developing the country’s shale and tight gas resources is “an ideological case” and the current Mexican government is against it. The positive news is “that this can be reversed at any moment because there is no legal provision against it.”

García Alcocer said, “I hope there is a change in the near future. There is a big opportunity there.” However, “national production will never be enough for the demand we have.”

Nearshoring Challenges

During one conference panel, NGI Senior Editor Andrew Baker said, “From an energy perspective, I don’t think there is any energy source that stands to benefit more from the nearshoring trend than natural gas.”

He warned, however, that “investments in Mexico haven’t been growing year over year.” Energy policies and other bottlenecks are holding back the potential of nearshoring.

Cacheaux, Cavazos & Newton’s José María Lujambio, energy practice director, told the audience that natural gas distribution networks were still lacking in Mexico. “There are several opportunities in particular… Distribution is what we would really need for the purposes of nearshoring.”

The Center on Global Energy Policy at Columbia University’s Adrian Duhalt agreed. He said only 8% of total investment in Mexico is going to new projects.

“Distribution is a bottleneck,” Duhalt said. He cited as an example the state of Puebla. German auto manufacturer Audi arrived in the state in 2017 and the management team “said ‘we need gas,’ and they built a distribution pipeline.” Puebla now is the epicenter of the manufacturing industry in southern Mexico, he noted. 

Also lacking in Mexico is electric power capacity. An estimated 2.3 GW of capacity will be needed by next year as a record number of international companies invest in the country as a part of the nearshoring boom, according to recent comments by executive director Claudia Esteves of the Mexican Association of Industrial Parks.

Energy lawyer Alain Duthoy said Nuevo León in northeastern Mexico has proven to be an example of where Mexico should go. Three major gas pipelines that originate in the United States serve the area. “Distributors have open access and various offers of supply. Opportunities are there for industrial development and power generation.”

Duthoy warned, however, that electric power and transmission are still insufficient to meet new demand. The “biggest opportunity right now is in power supply for nearshoring,” he said.

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Christopher Lenton

Christopher joined NGI as a Senior Editor for Mexico and Latin America in November 2018. Prior to that, he was a Senior Editorial Manager at BNamericas in Santiago, Chile. Based out of Santiago, he has covered Latin American energy markets since 2009 as a reporter, editor and analyst. He has an MA in International Economic Policy from Columbia University and a BA in International Studies from Trinity College.