The environment for natural gas pipeline investments in Mexico still remains strong, despite rhetoric promoting state-led, rather than market driven investment strategies. We acknowledge the uncertainties about the political appetite to decentralize natural gas operations, but we expect Mexico to continue to encourage investments across the natural gas value chain including exploration, production, and transport infrastructure.
Natural Gas Demand to Remain Robust
In the past decade alone, Mexico’s natural gas market has grown by 3%-4% annually. This trend is expected to continue. Over the next 10 years, we expect natural gas aggregate demand to increase by more than 20% to 25% which is supportive for investments in the sector.
CNH predicts that if current trends in energy demand in Mexico and natural gas imports remain steady, Mexico could potentially begin importing 95% of its natural gas by 2030. We expect the majority of this supply to come from the United States.
The largest driver of the growth of natural gas is consumer electricity demand and the second largest driver is the industrial sector. Electricity demand by the industrial sector will continue to grow over the next five to ten years, with a slower growth rate in later years due to our expectation for improvements in energy efficiency.
Natural Gas Imports Are a Key Focus
Natural gas imports to Mexico are primarily conducted through pipeline infrastructure. Mexico imports about 80% to 85% of natural gas via pipelines, however, there are possibilities to strengthen this network to ensure that natural resources are distributed across the country. This is where there are opportunities for midstream companies to add value. At the same time, companies offering midstream services need to consider the regulatory, market, and operational risks that could impact growth and profitability.
By pursuing midstream investments in Mexico, private companies can enter the Mexican market with less capital than upstream players and generate more predictable returns. Private firms offering midstream infrastructure services benefit from having a robust pipeline of production and distributed projects ready to move forward.
Future Investment Outlook Remains Strong
According to a report published by SENER, Mexico’s Ministry of Energy, Mexico expects to add close to “30,000 MW of combined cycle, gas-fired power generation capacity”. This points to further investments in the electricity sector which will propel higher volumes of natural gas imports. By 2030, natural gas will still likely make up 50% to 60% of power generation even though we expect robust development of the country’s renewable energy resources.
CFE is the most important promoter of transportation infrastructure. Over the last few years, it has awarded several long-term transportation contracts which have allowed private companies to develop new pipelines across Mexico. Contact us to learn more about the major pipeline development projects in Mexico.