Mexican energy trade group Consejo Mexicano de la Energia (Comener) has called on regulators to streamline permitting so as to not waste the near-term opportunities presented by nearshoring.
Nearshoring is the buzzword of the moment in Mexico. It refers to North American companies shifting manufacturing processes closer to home. Boosted by the United-States-Mexico-Canada-Agreement, or USMCA, along with logistical efficiencies in comparison to countries such as India and China, Mexico is poised to gain the most from the trend.
Natural gas imports from the United States into Mexico this year have demonstrated a steep upward trend, regularly hitting 7 Bcf/d in the summer months. Energy trade in 2022 between the two nations totaled a whopping $81.9 billion in real prices, an all-time high.
But Comener executives warned that permitting reform was “an immediate need” so that foreign investors could rely on the energy products and services that companies would require in their industrial processes.
Permits issued by Comisión Reguladora de Energía (CRE) for electricity generation, expansion of natural gas pipelines, service stations and fuel storage have all faced delays. The availability of these products and services “will be key when it comes to decision making for companies when deciding to relocate” to Mexico or not, Comener said.
The delays stem from the Covid-19 pandemic, when the CRE suspended activities and then only restarted gradually. Comener estimates some 4,000 permit applications in the oil and gas sector alone have stalled.
Added to the backlog is the rejection of numerous permit requests based on minutiae, meaning companies have to hire outside help in applying for needed permits. These include energy permit transfers, new permits and permit modifications, according to Comener.
Billions of dollars in projects would be in jeopardy without the necessary energy permits, the Comener team said.
The president of the textile and manufacturing export chamber known as Index, Luis Manuel Hernández, forecast that nearshoring could bring as much as $100 billion in investments to Mexico from 2023 to 2028.
Utility Naturgy Mexico recently announced it would expand its natural gas distribution network in Nuevo León in northern Mexico by 30%, citing the demands of nearshoring. But more is needed, according to experts.
“The recent announcements of more natural gas capacity and supply are positive, but there is still a lack of infrastructure in place to distribute it to the companies and industries that need it,” energy lawyer Alain Duthoy told NGI’s Mexico GPI.
Natural gas availability will be crucial for Mexico to seize and capitalize on the nearshoring opportunity, but given the lack of adequate infrastructure, the country is at risk of missing out on potential investment, according to a recent study by the Instituto Mexicana para la Competitividad (IMCO) think-tank.
