The energy crisis in Mexico paralyzes hundreds of factories

Texas resumes natural gas exports but recovery of production levels will still take several days. Mexico's energy crisis.

The energy crisis in Mexico paralyzes hundreds of factories
Photo by Fré Sonneveld / Unsplash

The supply crisis that has been affecting the country for the past five days has turned the Mexican electricity system upside down and forced hundreds of factories to shut down machines or reduce production. Although Texas, Mexico's main supplier, announced this Friday that it is lifting the ban on hydrocarbon exports, the industry has already incurred multi-million dollar losses and warns that it will take several days to recover production.

The industry in the north of the country has not experienced a similar event for a decade, when a blackout in Baja California was resolved in a matter of hours. This time, it has already been five days with problems. The intense cold that plagues the southeastern United States has frozen the instruments used to extract gas and has caused prices to skyrocket. On the other side of the border, this translated into a massive blackout on Monday that affected 4.7 million people. Although service has since been restored, Texas' decision to close the door to exports, with which Mexico covers 70% of the gas it uses to generate electricity, tightened the screws again.

The maquilas estimated $4.725 billion in losses as of Wednesday due to the power outages. Of the 2,600 factories that make up the National Council of the Maquiladora Industry (Index), about 700 were still shut down. Those that have started up have not done so at full capacity. There are industries that do not even have that option. The steel and glass factories, for example, use natural gas not only as a source of electricity but also as a fuel in their production processes.

The automotive sector, which accounts for 13% of manufacturing GDP, has been another of the hardest hit. Authorities have asked automakers to reduce electricity consumption due to the persistent instability in the system. At least five plants have decided to stop machines or reduce their operations until Monday. BMW has "temporarily rescheduled" some processes, while Volkswagen has completely stopped the production line of three vehicle models this Thursday and Friday. In a letter to President Andrés Manuel López Obrador, the automotive associations expressed their "great concern" for the "uncertainty" in energy supply.

Now that Texas has lifted the export ban, factories will have to make up for the lost time. As for the maquiladoras, it will take them four days to recover production levels, according to Index, and this will cost money: 94 million dollars per day in wages alone for double shifts in the four northern states most affected. But recovering production does not erase the lost days. Mexican maquiladoras are just one link in a global production chain. If the link fails, the chain falters. The sector employs more than 2.7 million people and its exports left $255 billion in 2020.

In the midst of the biggest economic crisis since the 1930s, gas shortages are another stumbling block on the road to recovery. To contain the pandemic, the Mexican government decreed in April the closure of all non-essential activities, including a large part of the industry. And, although the reopening began in mid-May, its effect has been slow due to sluggish foreign demand. In 2020, the automotive sector, which is highly dependent on exports, recorded a 21% drop in foreign shipments compared to the previous year, and the maquila sector a 7% drop.