Though Mexico is one the largest producers of oil, the energy prices in Mexico have been always exorbitantly high as compared to other nations. Though Mexico is actually the third largest crude oil supplier to the United States, the electricity costs were 47% higher in Mexico than in the USA last year, which has come down to 29% this year as the strong energy reforms are being implemented. These reforms are in the form of imported energy and is providing a boost to the manufacturing sectors in Mexico. Though Mexico has low labour cost and very low transportation costs compared to the US and also is in Nafta (north American free trade agreement), the hindrance has been high energy costs in the competitiveness of the manufacturing industry. The price of fuel determines about 80% of the cost of electricity in Mexico.
Fitch Rating analysis says, “Access to shale natural gas from the United States will lower Mexico’s historically high electricity prices and encourage the siting of industrial operations in Mexico.” All this put together and the rapid energy reform plans pushed by the President Enrique Peña Nieto from the year 2013 has made Mexico a huge market for Natural gas. The age old state monopoly in energy production was scrapped. Red tape approach was changed and private investments are encouraged in the energy sector. All this opened the doors to the cheap shell gas from the US, Texas being the nearest.
There are more than 14 pipeline projects in Mexico costing $7.4bn and running for 2,360 miles across the country. Mexico’s natural gas sector expected to expand in length by over 90% in the next three years and will have 13-15,000 miles of gas pipelines. Due to an inability to meet rising energy demand of the industry, Mexico has significantly increased natural gas imports from the US, as a result US natural gas exports to Mexico have sharply risen to 3bn cubic feet a day, and expected to rise by another 0.6 bcf in 2016.
The Federal Electricity Commission (CFE), has been gradually substituting the expensive oil with the natural gas and bringing down the electricity cost in the country. Mexico’s gas demand has risen by 25% since the year 2010 to nearly 3 Tcf and expected to rise another 50% by 2025. The current investment figures in Mexico in the Natural gas pipeline and power generation are $40 billion approximately.