ICIS View: Political appeal distracts from energy solutions amid crisis in Mexico
Claudia De La Rosa
- Senator pushes coal, fuels plants other than gas-fired
- Request comes as 2GW of gas plants prep for operations
- Valle de Mexico II, Topolobampo III now expected for JuneNorte III commercial start appears imminent
HOUSTON (ICIS)–Amid unprecedented energy market changes, a power market resolution from the head of Mexico’s Senate energy committee is a distraction from issues that could worsen as the administration resorts to resource nationalism for perceived political gains ahead of 2021 elections.
Senator Armando Guadiana of the coal-mining state of Coahuila presented a resolution to the Senate energy committee to exhort energy ministry SENER and state-run utility CFE to refurbish and put into operation all plants other than gas-fired plants ahead of what he believes could be a fourth-quarter shortage of US natural gas.
He highlights in his resolution, published in the Senate gazette 20 April, of plants powered by coal and fuel oil as well as internal combustion, hydro and geothermal plants that could help Mexico maintain its “energy sovereignty” and avoid power outages.
Guadiana’s resolution, which some sources said is unlikely to be taken seriously, shows a dearth of knowledge of market fundamentals underpinning Mexico-US energy interdependence.
Guadiana’s request is currently pending in front of the energy committee, which may decide not to move the resolution forward.
He points to a decrease in US gas production from November 2019 to “a historic low” in January 2020.
US dry natural gas production alone for January 2020 was 2.93 trillion cubic feet (tcf), according to the US Energy Information (EIA). This was more than 6% higher than in January 2019, not a historic low.
US gas production has continued to grow between 2015 and 2020 on the back of robust shale production and moderate oil prices. The crash in global oil prices due to plummeting demand is expected to have a knock-on impact on shale production, but not to the extent Guadiana expects.
US gas production is expected to face curtailments in associated gas production as US shale producers begin to shut off wells, particularly in light of West Texas Intermediate (WTI) plunging to negative settlements this week.
These shifts, however, do not support Guadiana’s claims. According to the EIA’s latest short-term energy outlook on 7 April, industrial demand for natural gas is expected to drop significantly due to an overall weakened economic outlook, as well as a depressed market for LNG exports from the US. Guadiana, however, believes the US will absorb all its supply by the fourth quarter when the US arrives at its high-demand winter season. However, the NYMEX Henry Hub futures curve remains below $3.00/MMBtu through the calendar year of 2020.
The senator’s request also comes as Mexico is poised to put into operation more than 2GW of natural gas-fired plants. One source said Norte III had begun presenting economic offers on the wholesale market as early as 15 April, but this was not immediately confirmed. A government official said the Valle de Mexico II and Topolobampo III plants, previously expected in April, are now expected online before the end of June. Power market operator CENACE did not immediately respond for comment.
Other sources said they were concerned Guadiana’s request is indicative of a wider attempt by the administration and its ruling MORENA party to justify what they believe it is already doing in the power market.
Some have said they think plants are already being dispatched in a haphazard manner with resulting decreases in locational marginal prices (LMPs) inexplicable to them. One Mexico-based power consultant, however, said the LMPs drop observed in recent months truly is a result of the incorporation of more renewables and other efficient generation sources to the grid.
Other sources said early this year energy ministry SENER had brought together CFE and Pemex to work out a deal for the former to buy high sulphur fuel oil from the latter, which has been long. It is currently unknown if the two were able to work out a deal as sources said CFE insisted on a discounted price, however, if they did, this could be contributing to incentives to dispatch fuel oil-fired plants.
Guadiana’s resolution may or may not be part of a coordinated effort, but he is distracting from crucial issues, discrediting himself and overshadowing his potentially-constructive ideas on other energy matters.
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