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U.S. Shale Gas Means Cheaper Power For Mexico, Fitch Says

Access to shale natural gas from the United States will lower Mexico's historically high electricity prices and encourage the siting of industrial operations in Mexico, according to an analysis by Fitch Ratings.

Contributing to Mexico's high power prices has been reliance on oil-based power production. Lower oil prices have helped bring power prices down and increase manufacturing output, Fitch said, but this has not been on a sustained basis.

"Fitch believes access to U.S. shale gas would reduce fuel costs, contributing to more competitive prices that would encourage international industrial investors to bring operations to Mexico," the ratings agency said. "The price of fuel determines about 80% of the cost of electricity in Mexico. Some of the potential savings in power generation can be attributed to the country's ability to tap into the abundant gas resources coming from U.S. shale fields."

Mexico's Comision Federal de Electricidad has been engaged in expanding the nation's pipeline network with multiple projects under way. Existing power plants are being converted to run on natural gas, and nine new gas-fired combined-cycle plants are planned or under construction, Fitch said. Multiple pipeline projects are in the works to carry gas from the United States to Mexico and to distribute it throughout the country (see Daily GPIJune 17).

"Mexico plans to invest US$146 billion in the electric system by 2029," Fitch said. "An investment of US$33 billion will strengthen the transmission and distribution networks, reducing losses, increasing connectivity and helping fuel supplies reach power generation sites. An additional US$113 billion investment in generation will help create an energy matrix based in natural gas and renewables, adding 60 gigawatts of additional installed capacity, with more than 40% related to gas."

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