Oil and gas suppliers are showing interest in establishing operations in Mexico to power automotive manufacturing plants. Round one brought in nine companies. Only these contenders were permitted to propose a financial offer on the 14 contractual areas, of which only two were awarded. The rest of the contractual areas were retained by the state.
However, through a combination of low wages, good geography and free-trade agreements, many automobile manufacturers have invested in Mexico. The hope is that this will boost the country’s manufacturing base.
Recently, Mexico has seen an increase in its automobile manufacturing and export industry. In the 1980s, manufacturing plants often extended across the border to assemble automobiles in Mexico from parts produced in the U.S. and re-export the finished product back to the states. Since the 1990s and early 2000s, Mexico has seen a climb in investments by automotive manufacturers for the production of increasingly complex modern car parts and assembly plants, positioning the country to become a vital center of high-value manufacturing.
Through a combination of low wages, good geography and free-trade agreements, many automobile manufacturers have invested in Mexico
In April, Toyota Motor Corp. announced that it will build a plant in Mexico to manufacture the 2020 compact Corolla. Following the news, Ford Motor Co. released its plans to build and expand its engine and transmission manufacturing plants in the northern and central states of Chihuahua and Guanajuato. These extensions and expansions of manufacturing plants in Mexico certainly seem to be a trend in the current automobile industry.
There is a need to power all Mexican manufacturing plants with new energy sources. The country’s natural gas production capacity is higher than it was in 2000, but it has not been able to keep up with the demand, increasing about 123 percent between 2000 and 2014. Nearly all of Mexico’s internal natural gas production supports its oil operations and national electricity generation.
Mexico’s proven gas reserves are on the decline due to underinvestment in exploration. Production began to decline in recent years, as well, as price differentials have made it more profitable for PEMEX to produce oil than gas.
In 2014, U.S. natural gas exports accounted for approximately 69 percent of Mexico’s natural gas imports and 24 percent of its natural gas consumption
Despite the fact that Mexico may have important unconventional natural gas resources, the country is further behind in developing them than others, such as Canada. The Mexican energy reform wishes to attract private investment for exploration and production of both conventional and unconventional natural resources, but also to increase funds for much-needed infrastructure for transportation, distribution and storage.
As a result of demand rising faster than production, Mexico’s imports of natural gas have also increased, accounting for about 35 percent of consumption today compared to less than 10 percent in 2000. Fifteen years ago, Mexico imported 30 percent of U.S. natural gas exports, accounting for 100 percent of its natural gas imports. In 2006, to help meet its growing demand for gas, Mexico started importing liquefied natural gas at very high costs from Nigeria, Qatar and Peru.
The current capacity of U.S. natural gas exports to Mexico is 4.9 billion cubic feet per day. By the end of this year, that capacity should reach 8 billion cubic feet per day.
Due to the North American Free Trade Agreement (NAFTA), Mexican imports of U.S. natural gas are accepted in the public interest and permitted without any holdups. In 2014, U.S. natural gas exports accounted for approximately 69 percent of Mexico’s natural gas imports and 24 percent of its natural gas consumption. From 2008 to 2013, U.S. pipelines to Mexico doubled their capacity. Current U.S. export capacity to Mexico is 4.9 billion cubic feet per day. By the end of this year, that capacity should reach 8 billion cubic feet per day. It seems that in the near future Mexico will likely remain dependent on U.S. supplies of natural gas to meet its growing manufacturing demand.