MI’S Mexico Energy Chatter

MI’S Mexico Energy Chatter September 4th, 2024 

Sheinbaum appoints new PEMEX director 

• President-elect Claudia Sheinbaum announced on 26 August the nomination of Victor Rodriguez to lead state producer PEMEX.  

• Rodriguez, who has an academic background, and is considered close to the president-elect, is expected to focus on balancing the state oil company’s production targets with the pressing need for financial discipline and sustainability amid shifting global energy dynamics. 

• In his first statements after the nomination announcement, Rodriguez emphasized that PEMEX’s collaboration with Mexico’s finance ministry was essential to stabilize the state-owned company.

• Sheinbaum had recently said that she expects PEMEX to refinance its debt before a significant portion of its bonds come due in 2025. PEMEX’s debt burden stands around $100 billion. The firm’s present financial troubles mean that the business only contributed around 7% of the federal budget in 2023, down from 44% in 2008. 

• During his nomination press conference, Rodriguez agreed with Sheinbaum’s proposal to use renewable energy production, lithium and cogeneration projects as strategic ventures to improve PEMEX’s position to refinance its debt.  

• This proposal from the new administration to engage PEMEX in new ventures contrasts with the expectations of independent analysts. Rating agency Moody’s anticipates that the new government will not produce significant changes in PEMEX’s business model or in the government’s financial support for the oil company.

• Beyond the financial management of the firm, other issues such as its aging facilities, human capital negotiations especially as it relates to PEMEX’s union, as well as governance and social challenges will test Rodriguez.  

New commercial and regulatory progress for Mexico’s LNG export projects 

• Liquified natural gas (LNG) export projects in Mexico experienced significant progress during the last few weeks.   

• Mexico Pacific’s Saguaro LNG project in Sonora signed a commercial long-term sales and purchase agreement (SPA) with South Korean company POSCO International. This announcement adds to the several other commercial agreements Mexico Pacific has signed with Asian buyers.   

• Mexico Pacific has touted the project’s advantage with closer proximity to Asian markets, bypassing the Panama Canal compared with US Gulf LNG export projects and access to US-sourced gas via pipeline from the Permian Basin.  

• The project developer has gained momentum toward making a final investment decision (FID), which is expected to happen before the end of 2024.   

• Mexico’s energy regulator CRE also authorized the company to launch an open season for its proposed Sierra Madre pipeline, a 29 August regulatory filing shows.  

• The Sierra Madre pipeline will be the primary gas source for the project in the Mexican state of Sonora. The pipeline will have a capacity of around 2.8bcf/day and it will connect from Waha through the US-Mexico border crossing the Mexican states of Chihuahua and Sonora, all the way to the plant’s location in Puerto Libertad.  

• Amigo LNG, another Sonora-based export project, signed a long-term LNG supply deal with Malaysia’s E&H Energy, which will see Amigo LNG supply 3.6mtpa of LNG for the Malaysian market over 20 years, beginning in the third quarter of 2027, according to a release on 23 August.  

• The governor of the Mexican state of Sonora, Alfonso Durazo, announced earlier this year that Singapore-based development company LNG Alliance reached an agreement with public utility CFE to advance the construction of Amigo LNG in Sonora.   

• Meanwhile, New Fortress Energy’s Altamira Fast LNG unit, which became the first official LNG exporter in Mexico on 9 August, received an authorization from the US Department of Energy (DOE) to export LNG to nations that do not have free trade agreement (FTA) with the US. New Fortress Energy had already received an export license to sell to FTA nations in the first quarter of last year.   

Puerta al Sureste could be operational by mid-2025   

• Canada-based TC Energy plans to have the Puerta al Sureste underwater pipeline operational by mid-2025, according to https://mexicobusiness.news/energy/news/tc-energia-cfe-accelerate-underwater-pipeline-project   

• The $4.5 billion project is TC Energy’s second offshore natural gas pipeline project in Mexico and once completed, it would be expected to play a critical role supporting key demand centers in the southeast part of the country.  

• TC Energy executives have said in the past that the firm had been able to secure various land acquisition agreements required for pipeline interconnections and compressor stations in the states of Veracruz and Tabasco. The Puerta al Sureste pipeline project is expected to connect in Tabasco and Veracruz and to deliver to a proposed liquefaction plant at Coatzacoalcos.    

• TC Energy has also worked with the CFE on various other projects, including the Villa de Reyes pipeline and the Tula pipeline’s west section.   

EYES ON ENERGY 

Energy reliability in particular will be fundamental to Mexico taking advantage of the nearshoring movement, as companies will only relocate their operations if they are assured access to constant and affordable power, especially in energy-intensive industries such as the manufacturing or automotive sectors. 

To enhance Mexico’s energy security, economic competitiveness, and sustainability, the Center for Strategic and International Studies (CSIS) recommends the following strategic actions: 

1. Renew Hydrocarbon Bidding Rounds
   Mexico should renew the bidding rounds for hydrocarbon exploration and production. This move will attract international investment, foster technological innovation, and ensure optimal resource management to meet the country’s growing energy demands. 

1. Fortify Pipeline Networks, with a Focus on Southern Mexico
   Strengthening Mexico’s pipeline infrastructure is crucial for enhancing energy distribution and security. Priority should be given to developing new gas pipelines in southern Mexico, which could lower energy costs in the region and create more attractive nearshoring opportunities for industries looking to capitalize on a stable and affordable energy supply. 

1. Expand Natural Gas Storage Capacity
   To ensure energy stability and resilience, Mexico must significantly increase its natural gas storage capacity. Developing additional storage facilities will help mitigate supply disruptions, manage price volatility, and support the country’s growing demand for natural gas. 

1. Accelerate Renewable Energy Infrastructure Development
   Investing in additional renewable energy infrastructure is essential to reduce Mexico’s heavy dependence on natural gas. Expanding wind, solar, and other renewable energy sources will help diversify the energy mix, reduce greenhouse gas emissions, and align with global sustainability goals.