Mexico Energy Monitor

FERC approves Mexico Pacific’s connector pipeline

  • The US Federal Energy Regulatory Commission (FERC) granted authorization on the 15th of February to Saguaro Connector Pipeline to build and operate a 1,000-ft pipeline and related facilities in Hudspeth County, Texas.
  • This pipeline will be the US-Mexico connector for Mexico Pacific’s Saguaro LNG project in Sonora, Mexico. Saguaro LNG will also need to develop a new pipeline in Mexico, the Sierra Madre pipeline. Mexico Pacific Limited is counting on a final investment decision (FID) for both Saguaro LNG and the Sierra Madre pipeline in early 2024.
  • Saguaro LNG already has a US Department of Energy (DOE) authorization to export natural gas to Mexico and other free trade agreement nations as well as approval from the DOE to export LNG to countries without a free-trade agreement with the US.
  • Asian buyers continue to drive commercial interest in Mexico’s LNG, as demonstrated by most long-term offtake agreements for Mexican projects under development. Recent issues with the Panama Canal, involving severe drought affecting shipping, are elevating the relevance of Mexico’s west coast projects.
  • Export facilities such as the Singapore-based development company LNG Alliance’s Amigo LNG, Sempra’s Vista Pacifico and Energia Costa Azul (ECA), and Mexico Pacific Limited’s Saguaro LNG will provide an Asia-facing gateway for LNG exports fed by US gas.
  • Even with this geographical advantage, these projects in Mexico still face challenges. These include the upcoming presidential transition during 2024, which will likely involve associated regulatory issues.

Competition regulator greenlights Iberdrola transaction

  • Mexico’s competition regulator COFECE finally approved Mexico Infrastructure Partner’s (MIP) $6bn mostly government-financed and owned purchase of 13 generation plants from Iberdrola, but imposed various conditions that could impact the nature of the final deal.
  • In a complex and evolving deal communicated originally announced back in April 2023, Comunicado No. 23 Adquisición de plantas de Iberdrola será soportada por los flujos del proyecto | Secretaría de Hacienda y Crédito Público | Gobierno | ( We signed an agreement to sell more than 8,400 MW of combined cycle gas in Mexico for $6 billion – Iberdrola the acquisition of the 13 power plants will be managed by MIP, but ultimately controlled by Mexican government entities via a majority equity stake in the aquiring vehicle. The government’s National Infrastructure Fund (FONADIN) was granted $2.5bn by the Finance Ministry to be able take a majority of the equity capital (and the rest of the equity was to come from institutional investors represented by MIP). Banks (public and private) were to provide debt financing. However, the deal design, financing and ownership stakes may go through new iterations post the COFECE conditions, and changes in market conditions since April last year.
  • Cofece obliges the purchasers to operate the generation plants independently in the market and avoid exchanges of sensitive or strategic information between competitors (ie, CFE). The government owned entity Fonadin or its related parties in the operation must reduce and maintain their investment to a maximum 51%, which must happen within 24 months. These and many other conditions are valid for 10 years and will be constantly verified by Cofece through various mechanisms established in the resolution.
  • That said, these conditions will not be easy to enforce in the context of a powerful government both keen to see the state-owned CFE take de facto control of the assets, and itself owning a majority of the equity of the assets. (After the COFECE announcement, the President said that this acquisition will allow the CFE to increase its power generation capacity from 51% to 60%, suggesting he sees this as CFE taking de facto control of the assets.) As the CFE is not a direct party to the ruling, the COFECE cannot force it to act in a certain way. With the government trying to eliminate the COFECE, it may even not be around for 10 years. And as the President has said Iberdrola will be paid by February 26th, it seems likely that initially government entities will provide all or almost all the equity in the vehicle due to lack of time, leaving aside other reasons.
  • Even when Iberdrola is selling a significant part of its Mexico business, mainly its natural gas combined cycle plants, the firm said that it is committed to leading the energy transition in the country. During 2022, Iberdrola produced 2.90TWh in renewables, which represented a 6.70% increase year-on-year. Iberdrola is betting on developing a robust wind and solar energy business in Mexico as it works to reach ambitious decarbonization goals many Europe-headquartered companies are working toward.
  • In its 2022 results report released on February 22nd, 2023, Iberdrola acknowledged the business opportunities present in the Mexican market as the country commits to more ambitious climate goals. According to Iberdrola’s report, Mexico’s new climate commitments require 40GW of new renewable energy capacity to reach the proposed 35% reduction of CO2 emissions by 2030.
  • Iberdrola has been trying to navigate multiple issues in the Mexican market during the last few years. The firm has struggled to secure permits and modification requests from Mexico’s energy regulator CRE and to continue legal battles to defend its power generation assets. The new proposed deal may represent an opportunity to focus completely on its renewable assets.

Tamaulipas state government seeks to invest in natural gas storage

  • The government of the Mexican state of Tamaulipas is seeking to advance natural storage in the Brasil natural gas field, government officials announced. The Tamaulipas government said that it is performing all necessary technical studies before it starts commercial discussions with potential partners.
  • Mexico currently has a storage capacity of 2.4 days of natural gas reserves. This figure contrasts with the capabilities of countries like France, which has a storage capacity of 98.8 days of reserves and Spain with 34.2 days.
  • Mexico has not seen robust progress in this area since 2018 when the energy ministry SENER published a guiding document to increase natural gas storage capacity in the country. The original goal of this document was to increase storage capacity to five days of reserves. Under this 2018 roadmap, Mexican authorities were supposed to issue tenders for depleted onshore hydrocarbon sites considered to be economically unviable for the extraction of hydrocarbons to build the storage infrastructure needed.
  • SENER identified four sites: Acuyo in the state of Chiapas, Brasil in the state of Tamaulipas, Jaf in the state of Veracruz or Saramako in the state of Tabasco. However, most of the tenders were never awarded and in the few cases that regulator CRE authorized permits, nothing has come online yet.
  • The lack of progress could be seen as problematic as natural gas has become the number one source of electricity generation in Mexico. Currently, most of the electricity in the country is produced with natural gas. On top of that, there is increased natural gas demand for industrial activity.
  • Even when Mexico’s state-run utility CFE has been continuously expanding the pipeline infrastructure and signing agreements with strategic partners to guarantee supply, there has not been as much interest in increasing storage capabilities. The market disruptions produced by the Russia-Ukraine conflict demonstrated the need for Mexico to maintain larger amounts of natural gas reserves to avoid falling victim to sudden price changes.


Moody’s downgrades PEMEX’s rating

Credit rating agency Moody’s downgraded PEMEX’s rating category to B3 with a negative outlook.

Moody’s said that its decision reflects PEMEX’s increasing liquidity needs due to higher capital requirements and the sizeable debt amortization burden it will face in the next two to three years. The firm anticipates that PEMEX will face greater business risks as it continues to expand its refining capacity and seeks to increase production.

Moody’s decision takes into account that PEMEX is not proactively seeking to improve its ESG standards, which is leading some banks to limit their exposure to the company.

PEMEX has been recently trying to improve its position through various operations in the financial markets. The administration of President Andres Manuel Lopez Obrador continues to support the company through tax cuts to help with the company’s liquidity issues, including new relief after rthe Moody’s downgrade.