Natural gas is the strategic fuel in the Mexican economy, more than oil and liquid fuels. Natural gas accounts for 63 percent of power generation in the country. All kinds of industries use it as an energy source or in their processes.
State-run oil firm Petróleos Mexicanos (Pemex) consumes 70 percent of its own gas production in its oil fields and in oil processing. Its refineries give preference to using gas in its boilers, since gas is cheaper and much more efficient per unit of heat than fuel oil.
However, there is no clear, coherent policy that ranges from the development of reserves and production to the supply and consumption of natural gas, despite the fact that, excluding Pemex, imported gas supplies 90 percent of Mexican natural gas consumption, and fortunately the imported gas is very cheap. Projects for producing dry gas (not associated to oil) in the Burgos Basin and offshore Veracruz have been cancelled.
The government rejects fracking as a key option for producing gas. And it prefers that excess gas imports in the north-west of the country be exported to Asia, rather than having private firms generating power in the region. Construction of several gas pipelines and compression stations remains incomplete. Other pipelines are mired in legal disputes. There is no gas available for the petrochemical industry. Supply is scarce even in the south-east, which is currently the only producing region.
Another grave problem is that almost all the gas produced by Pemex is severely contaminated with nitrogen. When Pemex over-exploited its best oil field, Cantarell, by injecting nitrogen to maintain oilfield pressure, it committed the error of not building plants to segregate the nitrogen from the gas that would be produced from the field in the future.
For that reason, the energy networks in the southeast of Mexico are seizing up. Contaminated gas damages the turbines in power plants. It has become necessary to stop injecting contaminated gas into the pipeline system and to shut down cryogenic plants in gas processing centers, as well as petrochemical complexes belonging to Pemex and to private companies. These companies are now looking at ways to get access to imported gas and ethane in order to keep operating. And Pemex is not ready to invest to fix the problem.
So, what is going on? Why do we not have a natural gas policy? President Andrés Manuel López Obrador and his team either ignore the problems or they do not give much importance to them. Their energy policy is not based on careful, professional, impartial, technical and economic analysis in order to establish what the country really needs. On the contrary, it gives preference to ideology, improvisation, prejudice and the worship of oil.
López Obrador has set out goals for oil production, energy self-sufficiency and for construction and rehabilitation of refineries, which are either unrealistic or inconvenient, as they are not based on a correct technical and economic diagnosis.
They are unreachable goals for reasons related to the market, costs, logistics, lack of investment, operational failures. By limiting private energy investments, projects are being cancelled that would strengthen Mexico’s energy networks, particularly in the natural gas industry and in power generation.
Several years from now, most vehicles on the road will be electric. It will be the end of oil’s dominance and it will lead to a new boom in the use of gas in power generation. Mexico could be a major producer of natural gas with the right policies, because it has a large, unexploited gas reserves. But in the foreseeable future, it will have to keep importing gas, which advises in favor of signing long-term natural gas supply contracts with U.S. producers, which would give certainty to both sides.
But today, Pemex is seizing up. If it does not die from its debts, its corruption and its inefficiencies, it will die because it could not supply gas. And because the government could not draw up an effective, integral natural gas policy.
* David Shields is an energy industry analyst. His e-mail: david.shields@energiaadebate.com A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition.
