Mexico has always been more of an oil producer than a natural gas producer, yet, up until 2000, it was able to remain self-sufficient in terms of natural gas. In that year, demand started surpassing production and PEMEX, the only hydrocarbon producer at the time, did not prioritize substantial investment in natural gas production. As such, following stagnant production and increasing demand, the former gas exporter became a net importer.
Right around that time, the US was perfecting fracking, a technology that would allow it to produce difficult-to-access unconventional gas resources and increase its production to levels that allowed for exporting activities. According to the US Energy Information Administration, Mexico went from importing 105,102MMcf from the US in 2000 to 728,513MMcf in 2014, which represents nearly a sevenfold increase. To date, Mexico imports approximately 40% of its natural gas consumption. These figures are expected to continue to rise, and by some estimates, Mexican consumers could take up to 10% of total US natural gas production over the next two to three years.
To facilitate these imports and to improve gas distribution channels throughout the country, Mexico has undertaken an enormous project to build more pipelines. The Los Ramones project improves the pipeline interconnection between the US and Mexico and expands the reach of Mexico’s pipeline network, meeting growing demand from both industry and power plants. This has proven to be a very attractive opportunity, evidenced by the participation of PEMEX, IEnova, TAG Pipelines, BlackRock and First Reserve in the first phase of the project, and GDF Suez, Odebrecht Infrastructure and Arendal and Techint in the second phase. Phase one involved the construction of a 118km-long pipeline from the Camargo, Tamaulipas, to Los Ramones, Nuevo Leon. Phase two is composed of two different pipeline constructions. The first, Los Ramones II South will connect San Luis Potosí to Apaseo El Alto, Guanajuato, and the second, Los Ramones II North, will involve the construction of a pipeline between Nuevo Leon and San Luis Potosí and the construction of two gas compression stations.
The project will also allow for the further development of Mexico’s main manufacturing industries, such as automotive and aerospace. Manufacturing is growing at a rapid pace in the central region of Mexico, which will soon benefit from improved access to natural gas.
The development of efficient infrastructure throughout the country for gas imports from the US will also enable Mexico’s transition from fuel oil-based electricity generation to natural gas-based electricity generation. Mexico is one of the last countries in the developed world to experience this change, and such a transfer will allow for significant cost advantages and environmental benefits.
The Los Ramones project is just the beginning of a larger undertaking. The extensive pipeline network is expected to be integrated into Mexico’s future natural gas industry, rather than being an extension of the US natural gas pipeline network which creates a consumer market for the US shale gas boom. As mentioned previously, Mexico’s natural gas industry is underdeveloped. A mix of associated natural gas production at existing fields, the inclusion of natural gas fields in Round One and the following rounds, and the start of production at Mexico’s first deepwater natural gas field Lakach, are destined to raise the profile and production level of the Mexican natural gas sector.
Indeed, Mexico’s combination of a growing network of natural gas pipelines and rich natural gas resources suggests a bright future for the development of the country’s natural gas industry.