“The global need for natural gas is going to continue for at least the next 30-40 years, whether for power generation, backup or industrial purposes, particularly in Asia and Europe,” Rogelio Calderón, industry expert and founder of Huasteca Ventures, told NGI’s Mexico GPI.
“If Mexico has an LNG hub with access to that market, we’re going to continue to see significant LNG demand especially from Japan, Korea, China and Indonesia, where they don’t produce enough natural gas to be self-sufficient.”
Calderón added: “In the years to come, there will be a deficit for natural gas in the world, and if Mexico has available LNG export plants to supply foreign markets, the country, and the US, should benefit from these projects over the next 20 to 30 years.”
Rogelio Calderón is an energy and industrial projects consultant with more than 16 years of experience in the Mexican private sector and abroad. A lawyer by trade, Calderón is the founder and partner at Huasteca Ventures, which advises clients on project strategy and financing, legal and contractual operations, agroindustrial and energy industry projects such as natural gas pipelines, electricity generation, permits and renewables.
Calderón has an MBA from the University of Texas and holds degrees from the Universidad Anáhuac, Instituto Tecnológico Autónomo de México (ITAM) and the Tecnológico de Monterrey.
Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, offers the following question-and-answer (Q&A) column as part of a regular interview series with experts in the Mexican natural gas market. Calderón is the 93rd expert to participate in the series.
NGI: It’s interesting to see that, following the Texas freeze and Winter Storm Uri in 2021, residents in the U.S. and Mexico are so concerned that there could be another similar event in which their homes are without gas and electricity.
Calderón: This is really the case all across the world right now, and it is the issue that is worrying people in Europe. It’s really been like that for a few years now, and what we’re seeing is a global crisis for natural gas supply. A lot of people are pointing to the Russia-Ukraine conflict as causation, but the truth is, there has been a very significant natural gas crisis for several years now.
As is well documented, natural gas is really the transition fuel of the moment, which is increasingly evident when you see situations such as what is happening in places such as Texas and Europe. In Europe, there has been more of an effort to transition to yet immature renewable technologies than in Texas, for example, but right now the demand and need both have for reliable natural gas has never been greater.
NGI: With the Texas and Mexico markets so intertwined, one issue that dominated the North American energy market this year was the trade agreement or USMCA consultations. What do you expect will happen with the USMCA in the first months or weeks of next year?
Calderón: As we know, the USMCA topic has become very politicized. I would expect that in the first two to three months of next year that there will be an agreement, which will be similar to how participating parties would sign or amend a contract. At the end of the day, the USMCA is a contract, and thus all parties must be willing to make adjustments to arrive at an agreement to the terms. I think all sides have shown willingness to do this and will work through the consultations to arrive at a good deal for all parties and remove the political element of it all.
I’ve commented on this quite a bit in the past, and I insist that Mexico is not in violation of the USMCA. There is something known as legal exceptions, which is the general theory of obligations. As with any international contract, Mexico is applying these exceptions as a sovereign nation. This isn’t just happening in Mexico in regards to international agreements or economic principles, but it’s really happening around the world. Why? Because the conditions in the world are urgent or pressing, and countries need to protect their energy industries in some form. Both the U.S. and Canadian energy industries do this regularly. We’ve seen this with the USMCA, which we first saw with “America First,” we’ve seen it with the subsidies to electric automobiles, as well as with other subsidies such as tax credits or incentives.
And, because the U.S. and Canada understand protection of their own energy industries, I think all sides will be able to reach an agreement. It’s a legal issue and hopefully the political element will be taken out of it. Because what Mexico is doing, legally speaking, is exactly the same thing that the U.S. and Canada are doing, which is attempting to protect their own population and energy industry by applying exceptions to rules and agreements. The exceptions that Mexico is attempting to apply — regardless of if they are considered good or bad — are similar to ones applied by the U.S. and Canada to protect their own industries.
[Mexico Matters: Cross-border energy trade between the U.S. and Mexico reached $42 billion last year. Understand this burgeoning trade flow — the projects, politics and natural gas prices — with NGI’s Mexico Gas Price Index. Know more.]
Many of my clients and members and entities in the industry agree that they’d like to see an agreement and for the political element to be removed. Given the global geopolitical situation, there’s no reason for the three North American nations to be at odds with one another, and my hope is that there is a real effort for integration rather than competition.
Currently, it seems Canada and the U.S. are criticizing Mexico for attempting to do something that they do themselves. And, if we do achieve more integration between the three countries, that’s a benefit to all and will strengthen North America ahead of any future uncertain geopolitical events.
The truth is that Mexico, the U.S. and Canada are far better positioned than Europe, for example, in the event of an international energy crisis. Europe has been in this position for years, as I mentioned earlier, and the situation has obviously been exacerbated by the Ukraine conflict. Europe’s had a natural gas crisis for years, as well as in renewable energy generation, which has caused intermittent grids, which makes these countries more vulnerable to climate events, such as drought.
So, it’s a much better strategic position for the U.S., Mexico and Canada to be in agreement and really work together.
NGI: So, you think all sides of the USMCA will reach an agreement before facing a panel ruling?
Calderón: I don’t think it will get to a panel determination. Because it’s now a political subject, it would complicate diplomatic relations, which isn’t what anyone wants. Sometimes a bad agreement is preferred over a prolonged fight that would last several years. It would be like a lengthy arbitration. Someone might eventually win, but it’s far easier to arrive at an agreement now to avoid all of that. If this was being disputed in the private sector, for example, it would be very, very likely that an agreement would be reached prior to allowing the decision to be determined by a panel.
NGI: In recent months, we’ve seen the Comision Federal de Electricidad or CFE signing contracts with private companies such as Sempra Energy, TC Energy, New Fortress Energy, and Engie, for example, which is a significant change in approach compared to the first years of the administration. What are your thoughts on the CFE’s change in strategy and openness to deals with foreign companies?
Calderón: I think the eventuality of these investments was expected. There was a dramatic change in the government of Mexico which included a change in ideology and a different approach to many aspects of the country. We hadn’t seen such a dramatic change in government in decades in Mexico and there were some companies — not all — that were unhappy with the new policies. This happens in every country and is not specific to Mexico. Incoming governments often mistrust and question what was done prior to their entrance into office, and, in the case of Mexico, this led to the review of many previous contracts, including some that were in fact lopsided and done poorly. As the CFE took time to assess contracts granted in the previous administration, Covid struck and disrupted everything, which I think delayed a lot of deals from being done.
A lot of my clients had questions about the administration’s comments against private investment, though it was understood that eventually deals like this would come. First there were projects such as the Tuxpan or the marine pipeline last year, and this year the announcement of the Lakach development was also anticipated. It was understood that a private company would be contracted to develop Lakach, given it is such a large and challenging project.
So, I think that as we near the end of this administration’s six-year term, the government will be seeking to complete some of its development plans. To do so, the private companies are going to need to partner or work with the government, which will have to be more willing to award permits. I think there is now more of an understanding about what each side needs, which I think will make for much more activity in the sector. I think a period of recovery has begun and it’s what Mexico, as well as many global economies, need following the Covid years.
NGI: You mentioned the Lakach development. What are your thoughts on the project?
Calderón: Mexico is also positioning itself to be a lot more active in the LNG market, which I see as a positive development. The U.S. and Texas have a lot of gas that needs to be used and shipped to outside markets. So, for Mexico to develop LNG plants, it is also a good opportunity for the U.S. An example would be what Sempra is doing in Rosarito, near Tijuana, where they will export US LNG. Mexico is in a good position to liquefy and export LNG to Asia, which is a massive market that doesn’t have gas and has considerable needs, such as Japan and South Korea.
So, I think the Lakach project is going to be a very good one that will bring natural gas to the southeast region of Mexico where supply is limited. Mayakan is the only available pipeline in the region and has a very small spare capacity. So, I think the Lakach project will be good as it will provide additional domestic natural gas to consumers, create new natural gas pipelines for transport and local distribution and develop an export hub to ship LNG. It seems like it could become an integral project to the Mexican energy sector.
NGI: Recently, the CFE has announced plans to develop LNG plants to ship gas to markets with increasing demand, such as Europe and Asia. What are your thoughts on Mexico’s LNG plans as a long-term growth strategy for the natural gas market?
Calderón: As a long-term plan, I see it as a very good and interesting one. Why? Because the need for natural gas is going to continue for at least the next 30-40 years whether for power generation, backup or industrial purposes, particularly in Asia and Europe. If we have an LNG hub with access to that market, we’re going to continue to see significant LNG demand from Japan, Korea, China and Indonesia, where they don’t produce enough natural gas to be self-sufficient. Additionally, the European market will continue to need LNG supply.
So, the countries that have the ability to export LNG, or in the case of Mexico, re-export imported gas, they’re going to have ample markets with growing demand. With few suppliers and high demand, there will be opportunities for Mexico to reap the economic benefit of better margins, as the prices will likely be elevated. In the years to come there will be a deficit for natural gas in the world, and if Mexico has available LNG export plants to supply foreign markets, the country, and the U.S., should benefit from these projects over the next 20 to 30 years.
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