Outlook for Natural Gas in Mexico: The Electricity Sector Will Drive the Market

Energy, Power & Products (EPP)

February 8, 2017

Driven primarily by increased demand in the electricity sector, Mexico’s natural gas market has grown at an average annual rate of 3.5 percent over the past decade. Industrial users, such as basic metals and chemicals, have also contributed to the growth. Declining domestic supply has led Mexico to significantly increase natural gas imports to meet this increasing demand.

Mexico is at a pivotal point in the evolution of its energy markets. In the last few years it has passed reforms to liberalize its oil, gas, and electricity markets with the intent of attracting private investment to build out its energy infrastructure.

Even after accounting for increased Mexican natural gas production due to reforms, FTI Consulting forecasts a large need for imports from U.S. producers, pipelines, and liquefied natural gas (LNG) exporters. We project that Mexico’s natural gas demand will grow to 9.2 Bcf/d or 22 percent above 2015 levels by 2030 and that imports will rise 53 percent to 5.4 Bcf/d.

We also forecast that the electricity market will continue to be the principal driver of natural gas import growth. With electricity load expected to grow 3.1 percent annually through 2030, FTI projects natural gas demand in the electricity sector will increase 46 percent above 2015 levels. Mexico will install approximately 28,000 MWs of new combined cycle plants by 2030.

Mexico is poised to invest significant resources to enhance its infrastructure across the entire natural gas value chain – from exploration and production to pipelines, LNG terminals, combined cycle plants and industrial facilities. As this dynamic market unfolds, it will be critical for investors to understand not only expected return on investments but also expected supply and demand balances, competitors’ actions, and risks.

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