Outage exposes Mexico's energy dependence and infrastructure deficit

The massive blackout in northern Mexico has exposed the weaknesses of its energy system: the heavy dependence on gas from the United States and the country's shortcomings in production and infrastructure. President Andrés Manuel López Obrador has used it to defend a new energy model in which Mexico is self-sufficient and does not depend on foreign or private companies.

However, the blackout has also highlighted the challenges in moving forward with such a strategy: the Federal Electricity Commission (CFE) has minimal gas storage capacity and Petróleos Mexicanos (Pemex) is unable to increase production.

No electricity on both sides of the border. The great storm that the United States is experiencing has triggered the demand for gas in that country and, like communicating vessels, has put Mexico on the ropes. According to the CFE, gas prices increased by 5,000%, and the pipelines from Texas supplying the combined cycle plants in the north were frozen. More than four million Mexicans were without electricity on Monday.

The National Energy Control Center (Cenace), the electricity system operator, has once again called on the population to turn off lights and "close curtains to conserve heat" because of new load cuts scheduled for this afternoon in 12 states. The risk of massive blackouts is not yet present and that these temporary disconnections are made to give stability to the system and avoid a new collapse. Meanwhile, the manufacturing industry has estimated losses of 2.7 billion dollars, according to estimates released Tuesday by Index, the maquiladora association.

This electricity disaster has fueled an already heated debate on the future of the energy model. Gas accounts for 60% of the country's generation and is by far the main source of energy - renewables account for around 10% of production and hydroelectric power for almost 9%. This demand is largely covered by imports from the United States, which have grown in recent years to cover more than 70% of needs, according to the latest available data. There is, therefore, a double dependence on gas and imports. The government has decided to fill the gap created by the lack of gas with coal and fuel oil-fired power plants, the most polluting energy sources.

For López Obrador, the blackout is further proof of the need for greater self-sufficiency. "In recent times, in the neoliberal period, look for yourselves and see if you can find a plan to extract gas in Mexico. You are not going to find anything. There was no policy for that, because they bet on buying it," he declared this Tuesday during his morning press conference. Precisely, Congress is discussing these weeks an initiative sent by the President to reinforce the CFE's generation and limit that of private companies.

Mexico's gas production is in decline, with a 30% drop in the last decade, according to data from the National Hydrocarbons Commission (CNH). The low profitability of projects and the availability of cheap gas in the United States have favored imports to the detriment of domestic extraction. Pemex began work in 2007 and expected to start producing some 400 million cubic feet per day starting in 2012. However, the infrastructure to bring the product onshore was not completed due to the complexity of the project.

Despite López Obrador's speech in favor of gas self-sufficiency, the Executive has closed two potential doors to increase production. On the one hand, and in order to avoid environmental impact, the president committed himself since the election campaign to put an end to fracking, the extraction of gas by means of underwater rock fracturing. On the other hand, the government has wanted to limit private investment in the sector and has blocked farmouts, the associations between Pemex and companies to share the risks when exploring and exploiting a field.

Beyond production problems, the CFE has implicitly acknowledged shortcomings in the storage capacity of the substance. In a meeting on Monday afternoon, the Board of Directors of the electricity company decided to "include gas storage in the company's commercial and operational strategy", considering that it has a "strategic value" to face emergencies such as the massive blackout.

The previous administration of Enrique Peña Nieto presented in December 2017, a year before leaving office, a policy that established a mandatory minimum of five days of strategic natural gas inventory, some 45 billion cubic feet, by 2026. To reach that target, the document proposed several storage options such as tanks or subway salt caverns. The change of government at the end of 2018 interrupted the implementation of the strategy.

Producing more gas and improving its storage is not the only path. The other is to diversify energy sources so as not to depend so much on either imports or substance. Paradoxically, the blackout coincides with the government's initiative to create an electricity model that marginalizes plants that do not use hydrocarbons, wind, and solar. Pending a vote, the reform gives preference to CFE plants to upload their production to the grid first, while privately owned renewable plants take a back seat.

Responsibilities

The account of the top officials of the electricity industry and the information provided by the CFE blame the previous six-year periods for the weakness of the system. "This episode showed us the vulnerability of the country for depending on Texas gas. For the good of Mexico, we must recover energy sovereignty," asks the entity, which will be the biggest beneficiary of López Obrador's electricity plan.

"The current energy policy seeks the rescue, strengthening, and cooperation of the two state-owned companies: Pemex and CFE," the company stresses. "Since this emergency occurred, the workers, the technicians of the Federal Electricity Commission have been attending to the problem", emphasized the President, who wanted to make it clear: "We will continue to support the Federal Electricity Commission and Pemex with public financing, with the budget of the two companies".