U.S. Natural Gas Key to Mexico's Power Buildout

Mexico wants to secure a greater supply of natural gas, including from the U.S., as the country continues to build more gas-fired power plants. The U.S. Energy Information Administration (EIA) said U.S. exports of natural gas to Mexico reached record levels in 2021, as that country has expanded its natural gas pipeline infrastructure. Imports via pipeline accounted for more than 70% of Mexico’s total supply of natural gas last year, as compared to just 40% in 2015, according to the EIA. Mexico has reduced its domestic production of natural gas, and also has lessened its imports of liquefied natural gas (LNG), as it has ramped up pipeline imports from the U.S.

“The push by the Mexican government to effectively nationalize the power sector while also pushing to increase grid reliability means that U.S. gas is the main beneficiary,” said Campbell Faulkner, senior vice president and Chief Data Analyst at OTC Global Holdings, an independent institutional broker of commodities, covering financial and physical instruments. Faulkner told POWER, “The economic recovery in Mexico post the COVID pandemic will also lead to a greatly increasing demand for stable electrical power.”

Natural gas is Mexico’s largest source of electricity generation, accounting for about 60% of total power production and far outpacing any other resource, according to Statista, a German research and data analysis company serving the energy industry. New builds of gas-fired power plants are a key element of the government’s plan to enhance the role of state utility Comisión Federal de Electricidad (CFE) in power generation and electricity distribution. Government officials, in a power plan published last year, said, “the development of electric power capacity… will continue being based predominantly around the use of natural gas, with the gradual incorporation” of renewable energy.

1. The existing 525-MW Valladolid gas-fired plant in Yucatan, Mexico, which entered service in 2006, will be joined by another 1,061-MW gas-fired facility at the site, according to Mexico’s current energy plan. Courtesy: JERA 

Officials said that through 2024, nearly 4.2 GW of natural gas–fired, combined cycle capacity is set to be added to Mexico’s grid. Projects include the 327-MW Baja California Sur; 699-MW González Ortega; 505-MW Mérida III; 460-MW San Luis Río Colorado; and 1,061-MW Valladolid (Figure 1) plants.

CFE late last year also said it is developing a $4.5 billion project with energy ministry Sener, and Sistrangas pipeline grid operator Centro Nacional de Control del Gas Natural (Cenagas), to expand natural gas access on the Yucatán Peninsula. The project involves an expansion of the 2.6-Bcf/d (billion cubic foot per day) Sur de Texas-Tuxpan offshore pipeline, which is jointly owned by TC Energy Corp. and Infraestructura Energética Nova (IEnova). CFE in a statement said the expansion “will allow CFE to transport natural gas from the basins of the southern United States to the Yucatán Peninsula, supplying existing and new power plants in Mérida and Valladolid as well as the new trans-Isthmus pipeline, and providing redundancy and operational flexibility to the Dos Bocas refinery in Tabasco.”

CFE in January of this year said it is seeking private sector firms to build new natural gas infrastructure, and to support increased utilization of capacity on the country’s existing pipelines. CFE executives, speaking at a recent conference in Monterrey, Nuevo León, said the utility is launching multiple tenders from both its domestic and international fuel procurements divisions. The international group, CFEi, already has a two-phase tender underway for construction and operation of a natural gas pipeline to supply U.S.-sourced gas to existing and planned combined cycle gas-fired power plants in Baja California state, including the Baja California Sur project, according to one executive.

As Faulkner noted, Mexico’s expansion of natural gas–fired power is creating opportunities for U.S. groups. A compressed gas liquids (CGL) technology from a Houston, Texas-based company is being commercialized to support power generation projects in Mexico, part of a larger program to supply countries throughout Central and South America with fuel to help meet sustainability and environmental, social, and governance goals. Petróleos Internacionales del Caribe (PIC), and its operating division in Mexico known as PICMEX, and SeaOne Holdings LLC in January announced they would enter a memorandum of understanding in principle granting PIC an exclusive license to commercialize SeaOne’s CGL technology, systems, and designs throughout the Americas. PIC said its first use of the license will be fuels supply, terminals, infrastructure, and power projects in Mexico. PIC in a news release said it has evaluated SeaOne’s technologies since 2017, placing “a strong emphasis on environmental, social and governance aspects in addition to total cost.” The company said it considers the CGL technology “as the optimal means of delivering natural gas from the United States to its projects in Mexico.”

“The PIC-SeaOne partnership is a powerful combination to supply fuel for our power plants and our customers in Mexico and throughout the Americas,” said Michael Hood, chairman and CEO of PIC. “This new technology will be used for any type of gas-fired combined cycle power plants as it enables a more efficient, economic, and environmentally friendly delivery of the fuels needed for power generation and its other uses. The facilities that can benefit include but are not limited to manufacturing, hospitality, food processing, automobile, textile, infrastructure, heavy industries, construction development on land and/or sea and the like. Currently the anticipated facilities that will benefit are in the southern, northern and central parts of the United Mexican States. However, in the near future, all the countries in the Americas, including northern, central and southern territories will benefit from the CGL technology through the PIC platform and its expanding positions with SeaOne.”

Dr. Bruce Hall, COO of SeaOne Holdings, told POWER the company’s CGL technology “is a proprietary and patented non-cryogenic gas solvation technology, which SeaOne controls. The fundamentals and science behind CGL are predicated on gas physics. The CGL process optimizes the blending of natural gas and natural gas liquids into a single delivery of a non-cryogenic liquid cargo by manipulating the gas physics [optimizing the temperature and pressure of the mixture].”

Hood told POWER, “The primary benefit is the ability to blend what are otherwise separate supply chains [sourcing natural gas via LNG and then propane via a different supply chain] into one delivery. This enables a more efficient, economic, and environmentally friendly delivery of the fuels needed for power generation and other uses. This creates a significant benefit to various users in Mexico both government and NGOs [non-government organizations] as well as utility operations in-country who select to source their commodities via this method. Furthermore, as more and more countries adopt cleaner fuel alternatives this lowers the carbon emission footprints even further. These are the essential building blocks of the PIC and SeaOne commitment to a safer and cleaner environment.”

Hall told POWER, “The primary benefit of the CGL technology and the commercial structure that SeaOne is developing is the bifurcation of transportation arrangements and commodity supply for our customers. We have developed a virtual pipeline for Latin American and Caribbean customers that allows them to arrange for receipt of delivery of the commodity in the U.S. Gulf Coast cost markets with advantaged prices and flexible supply options. The CGL system will then allow them to transport and store the commodity to meet their operational requirements as market demands warrant. This eliminates operational constraints that conventional LNG supply has presented so far and allows the customer direct access to the market and operational flexibility to manage his fuel supply.”

Hall continued, “It has never made sense to us that we can have access to affordable energy here in the U.S., but our neighbors in Mexico suffer without it. Our objective with PIC is to develop infrastructure which cuts fuel costs by up to 50% compared to the oil-based fuels and coal that many are using. Additionally, both PIC and SeaOne are committed to reducing the environmental footprint of these fuels so that the countries and communities we serve can reach their sustainability goals.”

The PIC-SeaOne project is a recognition that U.S. natural gas will likely grow in importance for Mexico’s power generation for several years, even if that country ramps up its own gas production. “While there is some limited interconnection with the larger NERC [North American Electric Reliability Corp.] grids, Mexico is mostly reliant on its domestic plants for its own load serve,” Faulkner said. “Gas at this time looks to be the most reliable and consistent means for Mexican power production going forward through 2030.”

Faulkner told POWER there are challenges—pipeline projects within Mexico have been opposed by indigenous communities—that will need to be solved. “The biggest challenge will be resolving some of the [indigenous people] and terrorism-related issues with expanded/new pipeline builds into Mexico,” he said. “Mexico, like a great number of Latin American countries, has tremendous hydro installations that served the region well for decades,” but more power generation is needed, and “due to the expected population and economic growth, gas will be the main new build for reliable generation in the Mexican market.”

Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).

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