California Interests Bullish on Mexican Energy Prospects
The prospect of privatization of Mexico's energy industry under
its President-elect Vicente Fox has California interests salivating
because already robust demand and infrastructure activity in North
Baja and along the other northern states promises to get even
hotter under the new political leadership in the next few years.
San Diego-based Sempra Energy has already committed to about
$150 million in natural gas distribution and transmission pipeline
projects through 2005, aside from its joint venture North Baja
Pipeline proposal with PG&E Corp. (see NGI, Nov. 6) While the
company's officials involved in Mexico are reluctant to speak for
attribution, they confirm that the general prospects for opening up
Mexico's energy industry are considered very good under the new
administration coming to power next month.
"The realities of the marketplace seem to be indicating that
Mexico is headed toward privatization," said one California-based
source familiar with northern Mexico's energy projects. "Private
participation seems like it will be necessary to meet the future
demand in Mexico."
Last week Mexican business reports talked about a new effort by
Comision Reguladora de Energia (CRE), Mexico's FERC equivalent,
begun Nov. 1 to solicit ideas from industry and consumer sources on
how the government can improve the nation's natural gas
infrastructure to make it more "efficient and competitive." At the
same time, other reports are estimating that industrial demand in
the northern states is expected to require that a new 500 MW power
plant be built every four years.
Nationally, Mexico is currently estimating that just for its
electric industry alone to keep pace with projected new economic
activity some $25 billion of investment will be needed in power
plants and transmission lines. That means a lot of natural gas,
too, to fuel the new plants.
In the North Baja region, the new demand and infrastructure will
be fulfilled from the U.S. side of the border, and particularly
California, because the state of Baja is essentially an "energy
island" not connected with Mexico's gas pipeline or electric
transmission grids, but instead hooked into the western U.S. system
that is increasingly being taxed on the electric side because of a
regional shortage of generation.
As proposed in a new U.S.-backed 750 MW power plant at Mexicali,
new generation in northern Mexico can send supplies to customers on
both sides of the border. Intergen, a joint venture between Shell
and Bechtel, which has approvals to build the new Mexicali plant,
intends to sell a third of the plant's output (250 MW) in the U.S.
through the California Power Exchange (Cal-PX) and marketers,
according to sources familiar with the deal.
"Natural gas is the fuel of choice for these plants, and with
growth that large, the government will not be funding the projects
themselves," said the California source involved in Mexico. "So we
do expect to see increasing participation for both the gas and
"A lot of these new plants will be built, and in order to build
them on time and not bankrupt the government, they are going to
need increasing private participation."
Sempra Energy is already moving ahead with its projects,
according to a spokesperson who indicated they don't have any new
projects pending other than the North Baja pipeline, for which the
company hopes to get approvals before the end of the year.
The new natural gas transmission pipeline serving Rosarito Beach
power plants south of Tijuana in North Baja provides an average of
50-75 MMcf/d, according to Sempra sources. The distribution system
being built in Mexicali already has 7,000 customers hooked up with
a goal of 25,000 by 2002. Two other local gas distribution systems
are being developed in population centers in north-central Mexico
--- Chihuahua and La Laguna-Durango.
"In the future, we'll be looking at the pace with which
electricity deregulation might be taken up by Congress," said a San
Diego-based Sempra spokesperson. "Electricity is an area we would
be looking to get involved in in the future. Our main concentration
is northern Mexico. That is the most industrialized segment of the
country with higher demand and has the possibilities of
inter-connections with the U.S."
Richard Nemec, Los Angeles