Mexico Energy Monitor
September 26, 2023
Mexico acts to revoke Ganfeng Lithium permits for Sonora Project
Mexican President Andrés Manuel López Obrador (AMLO) confirmed Monday, Sept. 25 that his government was aiming to cancel concessions legally owned by China’s Ganfeng Lithium for the extraction of lithium, a central component for energy storage and for batteries used in electric vehicles. The president addressed the issue in response to a question from the press, following Ganfeng’s statement to investors on receiving notification of the cancellation of nine key permits tied to its Bacanora Lithium project.
In that statement, Ganfeng asserted the reform to Mexico’s guiding mining law that nationalized lithium “The Company’s position is that the project’s concessions cannot be impacted by these reforms because they were granted prior to the enactment [of lithium nationalization],” Ganfeng said. “This is consistent with the terms of the Constitution of Mexico, which, among other principles and rights, recognizes the principles of legality and non-retroactivity of laws.”
“Guided by the principles of good faith, cooperation, and mutual benefit, our Company has been proactively engaging with the Mexican government in general, and with the Secretary of Economy in particular, regarding a potential collaboration on the Sonora Project while respecting the Group’s rights,” said the firm, adding, “The Company continue[s] to seek a mutually beneficial resolution … [however,] as of now, no agreement has been reached between the company and the Mexican Government concerning this potential collaboration.”
Asked about the firm’s protest during the press conference Monday, AMLO said, “This was a decision already made with the nationalization of lithium,” adding he will be meeting soon with Sonora governor Alfonso Durazo to discuss progress on the matter. Given that the lithium nationalization law explicitly refers to new concessions and not pre-existing ones, the government is likely going to have to rely on other arguments for cancellation, even if AMLO’s comments indicate the motivation behind this decision.
Based in Bacadéhuachi, Sonora, Bacanora’s project had originally aimed to start operations in 2024, although the latest developments presumably will have delayed this. The company was also eyeing a second expansion project, Sonora stage 2, with had planned to start up in 2028. Bacanora Lithium estimates the lithium reserves within their concession amounts to 8.8Mt (million tons) of lithium carbonate equivalent LCE and had hoped to produce 35,000t of battery-grade lithium once operating.
Apart from the related employment, investment and tax benefits, the development of lithium in Mexico is considered fundamental to the consolidation of supply chains around battery and electric car production in Mexico. Unlike the Mexican government, Ganfeng possesses the necessary technology to separate lithium from the clay prevalent in the region, and has the deep pockets and capital allocated ($1bn+) to make this happen. Should the cancellation of the permits prevail, observers are concerned that Mexico may not be in a position to produce lithium any time soon. In the 2024 budget, the government has allocated a paltry $560,000 for the state company LitioMx which is effectively meaningless in such a capital intensive industry.
Ironically, federal and state officials in Mexico have in public jumped at prospects of developing a electric car supply chain across the USMCA zone in Sonora, just south of Arizona, powered by solar power. This has formed the basis of the so-called “Plan Sonora” announced last year to convert the arid state with access to the Gulf of California into a renewable energy powerhouse. Without sizeable lithium production, one key part of this promising plan will be missing.
Permits advancing for Puerto Libertad, Tesla’s Gigafactory
Key to Plan Sonora is the Puerto Peñasco solar project, a project headed by state-owned power company CFE, and one of the largest underway in Latin America. Phase 1 of the project launched earlier this year with 120 MW installed capacity, with CFE as owner and turn-key energy services provider Servicios & Soluciones Electromecánicos (SESELAC) managing operations. A second ‘sequence’ of phase one should bring this to 300MW February 2024. Phase two, ramping up in 2024, is scheduled for start of operations in 2Q26 to bring online another 300MW. A final 280MW third phase is set to begin construction in 2026 and wrap in 2027. Together, this brings projected installed solar capacity to 1GW, a milestone for public works solar projects.
President López Obrador, also Monday, offered an update on the megaproject in addition to other solar projects that remain undefined in the state, saying phases two and three at Peñasco were advancing, and “the four solar energy plants are set in place, complete projects, such that investment continues to flow into them with whomever inherits these projects [after next year’s presidential elections].”
He added that surface road infrastructure connecting to Puerto Libertad, “are going to be completed” – ostensibly before his term in office ends next October, and “the permits and investment for the liquefaction plant in Puerto Libertad are already in place.”
In other notable permit developments, Mexico’s environment ministry Semarnat has granted Tesla a permit for building its first Gigafactory in Latin America. The plant, announced for Monterrey, Nuevo Leon state in March, is seen as generating direct investments of around US$5 billion and roughly twice that potentially for nearby investments in OEM parts suppliers and second-tier industries.
Energy minister Nahle declares for governor race, transition set for November
Mexico energy minister Rocío Nahle has made public her long-expected bid to win the governorship of Veracruz state in next June’s general elections. Nahle, perhaps President López Obrador’s most ardent ally in reshaping the energy sector, said in a press conference Tuesday she planned to step down as minister in November, and barring a request to do so earlier from the president, she would organize her departure from the ministry in November.
She added the need to complete work on projects this month and next to further aspects of completion on the gargantuan Olmeca Refinery located near the port of Dos Bocas, Tabasco state.
Nahle has been the only energy minister in the current administration and has been an unbowed champion of the Dos Bocas refinery, which has a nameplate capacity for processing 340,000 barrels of crude oil per day (bpd). Earlier this month, AMLO declared the unit would reach output of 290,000 bpd by year-end, a result that could silence critics contending full operations could be years away.
The project has seen its share of controversies with costs that have risen from US$8-9 billion at outset to somewhere over US$20 billion, by the latest outside estimates. Part of the premium price tag is certainly connected to efforts by the administration to get the refinery operating as soon as possible, and critically before AMLO leaves office next year.
The project is a centerpiece of the president’s energy agenda as one of the first major works put into motion after his election in July 2018. Both López Obrador and Nahle have argued on many occasions the need to end refined fuel imports as top national priority.
Eyes on Energy
A new analysis by the US Energy Information Administration (EIA), “Oil 2023, Analysis and Forecast to 2028,” argues Mexico is set to lose more production of any OPEC+ nation after Russia in the next five years. The forecast sees Mexican output “dropping 500 kb/d [500,000 barrels per day) to 1.5 Mb/d [million barrels per day],” adding Mexico’s long-term oil production has seen a “brief respite in 2022-23 as the Quesqui field ramps up in earnest”.
The projection if realized would seem to be counter to President López Obrador’s vision of restoring Mexico’s oil platform under a state-based model with Pemex as the predominant force in exploration and development, enacted along with cancellation of private sector investment oil and gas rounds shortly after coming to office in early 2019.
It’s a trend that has dogged Mexico for more than three administrations. After peaking at 3.6 mb/d in 2004, Mexican oil production fell to 1.7 Mb/d in 2018, the lowest level since 1980. President López Obrador has taken multiple actions to help prop up the national oil company, including lowering tax rates and flat-out paying off some of its sizeable debt with the treasury.
Taking office, AMLO initially targeted production to reach 2.6 Mb/d by the time he leaves office next October, before revising the strategy to hit 2Mb/d. After a brief turn in 2022 of crude production surpassing 1.7 Mb/d, the company reported 1.573Mb/d in July. The IEA detailed the expected slowdown in production in the following graphics. 