The prospect of privatization of Mexico’s energy industry underits President-elect Vicente Fox has California interests salivatingbecause already robust demand and infrastructure activity in NorthBaja and along the other northern states promises to get evenhotter 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 pipelineprojects through 2005, aside from its joint venture North BajaPipeline proposal with PG&E Corp. (see NGI, Nov. 6) While thecompany’s officials involved in Mexico are reluctant to speak forattribution, they confirm that the general prospects for opening upMexico’s energy industry are considered very good under the newadministration coming to power next month.

“The realities of the marketplace seem to be indicating thatMexico is headed toward privatization,” said one California-basedsource familiar with northern Mexico’s energy projects. “Privateparticipation seems like it will be necessary to meet the futuredemand in Mexico.”

Last week Mexican business reports talked about a new effort byComision Reguladora de Energia (CRE), Mexico’s FERC equivalent,begun Nov. 1 to solicit ideas from industry and consumer sources onhow the government can improve the nation’s natural gasinfrastructure to make it more “efficient and competitive.” At thesame time, other reports are estimating that industrial demand inthe northern states is expected to require that a new 500 MW powerplant be built every four years.

Nationally, Mexico is currently estimating that just for itselectric industry alone to keep pace with projected new economicactivity some $25 billion of investment will be needed in powerplants 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 willbe fulfilled from the U.S. side of the border, and particularlyCalifornia, because the state of Baja is essentially an “energyisland” not connected with Mexico’s gas pipeline or electrictransmission grids, but instead hooked into the western U.S. systemthat is increasingly being taxed on the electric side because of aregional 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 onboth sides of the border. Intergen, a joint venture between Shelland 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 withgrowth that large, the government will not be funding the projectsthemselves,” said the California source involved in Mexico. “So wedo expect to see increasing participation for both the gas andelectric side

“A lot of these new plants will be built, and in order to buildthem on time and not bankrupt the government, they are going toneed increasing private participation.”

Sempra Energy is already moving ahead with its projects,according to a spokesperson who indicated they don’t have any newprojects pending other than the North Baja pipeline, for which thecompany hopes to get approvals before the end of the year.

The new natural gas transmission pipeline serving Rosarito Beachpower plants south of Tijuana in North Baja provides an average of50-75 MMcf/d, according to Sempra sources. The distribution systembeing built in Mexicali already has 7,000 customers hooked up witha goal of 25,000 by 2002. Two other local gas distribution systemsare 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 whichelectricity deregulation might be taken up by Congress,” said a SanDiego-based Sempra spokesperson. “Electricity is an area we wouldbe looking to get involved in in the future. Our main concentrationis northern Mexico. That is the most industrialized segment of thecountry with higher demand and has the possibilities ofinter-connections with the U.S.”

Richard Nemec, Los Angeles

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