Mexico Energy Monitor

CFE and ENGIE Sign Mayakan Expansion Agreement

  • On March 25th, Mexico’s state-run utility CFE and France-headquartered ENGIE Mexico announced an agreement to expand the Mayakan natural gas pipeline. The expansion aims to bolster natural gas availability in the Yucatan peninsula, utilizing supply from TC Energy’s pivotal Puerta al Sureste pipeline project.

  • This agreement is a response to the anticipated larger future demand for natural gas, despite the completion of the Cuxtal I project, which links the ENGIE-owned Mayakan pipeline to the national Sistrangas grid and is estimated to have increased gas transportation to the peninsula to approximately 120-140 million cubic feet (mcf)/day.
  • CFE is building two new power plants, one in the city of Valladolid and another in Merida, trying to increase the infrastructure capabilities of the Yucatan peninsula, an area traditionally considered underserved in terms of investment in key areas such as transmission, distribution and natural gas pipeline connections but with huge nearshoring opportunities should plentiful low-cost energy be available.
  • The latest data from the Yucatan state government showed that the construction of both plants is advancing at a rapid pace. The two plants have a combined investment of around $1.2 billion. CFE aims to achieve 4.5GW of total installed capacity in the Yucatan peninsula once these two plants are online.

  • CFE is currently constructing a solar plant in Merida called the Nachi Cocom plant, which is expected to have a total capacity of 7.5MW upon completion. Additionally, CFE is working on connecting Holbox island to the national SEN grid using 10.5km of submarine cables. Furthermore, they are rehabilitating an additional 6.5km of submarine cables connecting Isla Mujeres island with Cancun.
  • However, the agreement is likely to require approval from the competition regulator COFECE, and it may also need to comply with cross-participation regulations currently under scrutiny by the regulatory reform agency CONAMER.


Energy Ministry Releases Hydrogen Guidelines

  • Mexico’s energy ministry SENER released new hydrogen industry guidelines. The document intends to initiate discussions around the right framework to expand hydrogen production and consumption in the country.

  • SENER said that it will seek to build a regulatory and commercial structure that allows Mexico to establish a robust national hydrogen industry. Even when Mexico will focus on developing domestic talent, technology and resources, SENER added that it will look for partnerships with international financial institutions focused on promoting low emissions projects.

  • There is a growing interest among various market participants in Mexico to explore hydrogen projects, and the country already boasts a national association for hydrogen (AMH2).

  • AMH2 published a roadmap in May 2022 outlining a comprehensive vision to disrupt key industries in Mexico using green hydrogen. Since the release of the association’s roadmap there have been important market developments, including projects from state producer Pemex and state-run utility CFE.
  • AMH2 estimates that the development of a green hydrogen industry in Mexico could help the country avoid more than 50m tons of CO2 emissions before 2050. According to AMH2, a robust green hydrogen industry would contribute $46 billion to Mexico’s GDP and create 3.2 million jobs between 2025 and 2050.
  • In the case of the petrochemical industry, there is potential to substitute grey hydrogen for green hydrogen in oil refining while for power generation, Mexico could use the already existing natural gas infrastructure to mix green hydrogen with natural gas in combined cycle gas turbine (CCGT) plants.

  • Even when green hydrogen could produce significant benefits for Mexico, the market faces robust challenges as well. The industry would require massive investments. According to AMH2’s own data, green hydrogen development in Mexico requires almost $60bn between 2025-2050 and $6bn just before 2030 in order to secure momentum. Almost half of that investment will have to go to the acquisition of equipment for power generation, for which hydrogen has great potential. However, the regulatory outlook in Mexico remains uncertain as the country still does not have a national hydrogen strategy.

  • State-run utility CFE is currently developing a pilot project with green hydrogen in order to reduce Mexico’s dependency to natural gas imported from the US. Even though CFE has not provided specific details about this project, the utility said that it is exploring site options such as Puerto Penasco in the state of Sonora, where CFE is building a large solar plant. Puerto Penasco is the epicenter of the so-called Plan Sonora, a comprehensive renewable energy project that includes five additional solar plants as well as LNG and semiconductor projects.
  • State producer Pemex is also looking into various hydrogen options. Pemex included hydrogen in its 2023-2027 business plan as something to explore in various areas such as methanol and fertilizer production and for its own industrial refining processes.

  • While the Mexican national government takes timid steps, the state government of Nuevo Leon is trying to lead hydrogen development at a local level. The state of Nuevo Leon has significant potential to produce green hydrogen through wind energy, according to a new white paper published by the state’s government.

  • The report titled “Prospectiva Energetica: Hidrogeno Verde en Nuevo Leon” adds that in association with neighboring states of Tamaulipas and Coahuila, Nuevo Leon has the potential to develop a domestic regional hub in Mexico for production of green hydrogen that could be exported to Texas and Europe. The document said that other attempts to promote hydrogen in Mexico are focusing on producing the first hydrogen molecule but Nuevo Leon instead wants to build the human and technological resources to support every step of the hydrogen supply chain.

  • According to the white paper, it would be possible to install 32GW of electrolysis fed by 57GW of wind energy in the state. This generation capacity would be sufficient to decarbonize the state’s power grid and still have space for hydrogen production at a competitive cost.
  • The government of Nuevo Leon sees a significant opportunity to create a binational alliance for hydrogen exports between the US and Mexico through Nuevo Leon, considering that both countries could use existing infrastructure. This includes the ports of Altamira and Corpus Christi.

  • State officials are also incentivized by the growing interest in the US to support the industry. Recent legislative changes in the US, including the so-called inflation reduction act (IRA), intends to jump-start research and development and commercialization of leading technologies such as carbon capture and storage and green hydrogen.


PEMEX Increases Gasoline Production, Declines Petrochemicals

  • In February 2024, state producer PEMEX reported a notable 19% surge in gasoline production compared to the previous year thanks to increased utilization at existing refineries and the new Olmeca, Dos Bocas refinery. Despite this increase, Mexico remains reliant on substantial gasoline imports to satisfy fully its domestic consumption. While there has been a reduction in gasoline and diesel imports under President Andres Manuel Lopez Obrador’s (AMLO) leadership, the nation has yet to achieve the energy independence.

  • Related to this, Reuters reported Pemex “requested its trading unit to cancel up to 436,000 barrels per day of crude exports this month as it gets ready to process domestic oil at the new Dos Bocas refinery, an internal document seen by Reuters shows.”  The cancellations “will reduce exports of Mexico’s flagship Maya crude by 122,000 bpd, Isthmus by 247,000 bpd and Olmeca by 67,000 bpd, the document showed.”
  • In a separate article, Reuters reported Pemex canceled contracts for its Maya crude oil exports to refiners globally, amidst OPEC production cuts, potentially escalating oil prices further. This move primarily affects Maya crude exports, with possible continued, though reduced, exports of other varieties. The reduction in Mexican oil supplies, especially to the US Gulf Coast, is pushing up prices for similar crude grades. U.S. refiners, heavily reliant on Maya crude, are expected to be significantly impacted by these cuts.

  • Meanwhile, PEMEX continues to struggle to increase its petrochemical production, as indicated by the oil company’s data from February 2024. Due to Mexico’s reduced levels of oil production, the country’s crackers have faced shortages in the feedstock required to operate at maximum capacity. All of Mexico’s crackers depend on ethane as a feedstock, and the majority of domestically produced ethane in the country comes from oil production.

  • Because of the shortages of domestically produced ethane, Mexico’s two ethylene producers, Pemex and Braskem Idesa, are developing terminals to import the feedstock from the US.  Consequently, Mexico has relied on Braskem Idesa’s Etileno XXI plant and imports to satisfy its growing need for polyethylene and other ethylene derivatives.

  • One derivative that Mexico cannot import is ethylene oxide. It is too dangerous to ship overseas. As a result, downstream consumers of ethylene oxide in Mexico have had to make do with limited supplies. Because all of Mexico’s crackers rely on ethane, its chemical industry is even more reliant on refineries to provide it with domestically sourced propylene and aromatics. Pemex’s refineries in Mexico run well below nameplate capacity.

  • Overall utilization rates should increase once Pemex begins full operations at the new Olmeca refinery in Dos Bocas, Tabasco state. That refinery will have a naphtha reformer and a fluid catalytic cracking (FCC unit). Some of the propylene from the unit will be consumed by an alkylation unit. It is unclear how integrated the Dos Bocas refinery will be to Pemex’s petrochemical complexes. Any available aromatics and propylene may need to be shipped by truck or rail.


SENER Presents Petroleum Products and Crude Oil Projections  

Mexico’s crude oil and petroleum products production is projected to peak in 2030, with state-producer PEMEX expected to contribute around 90% of the national production, according to forecasts from Mexico’s energy ministry SENER. By 2037, SENER predicts that PEMEX will decrease its contribution to the overall national production to 86.8%, with the remaining portion sourced from tender rounds. Production is expected to continue focusing on shallow waters, with 66.9% of the current production originating from these regions.

As of January 2023, Mexico’s proved oil reserves, including crude oil, lease condensate, natural gas liquids, and oil sands, were estimated at 6 billion barrels, as reported by the US Energy Information Administration (US EIA). The Sureste Basin, primarily offshore of Mexico’s southeast coast (formerly known as the Campeche Basin), holds 81% of these reserves. The Tampico-Misantla Basin accounts for 14% of the remaining reserves, while the Veracruz Basin holds 5%.

Mexico’s reserves are distributed with 70% offshore, predominantly in the Sureste Basin, which spans both onshore and offshore areas, and 30% onshore, mainly in the Tampico-Misantla Basin. Currently, no known reserves exist in deepwater. Mexico’s production is primarily concentrated in the Northeastern Marine Region of the Sureste Basin. Production data for 2022 indicate that Mexico’s three largest fields, collectively referred to as Ku-Maloob-Zaap, contributed 551,000 barrels per day (b/d) of production, marking a decline of approximately 36% from their peak in 2013.