Blackouts in Mexico: Mexico’s Huge Reliance on U.S. Gas Uncovered by Winter Storm in Texas

The electrical network of Mexico, supplied by the state Federal Electricity Commission (CFE) and private producers, suffered a “generation deficit” of energy that affected millions of people.

First, in the states bordering the United States, some 4.8 million CFE clients were without electricity on Monday morning. Within hours, the power outage spread to 23 states, with 5.9 million affected.

Then the situation escalated nationwide on Tuesday, affecting millions: scheduled outages reached 26 of the 32 states in the country, in which there was no electricity for periods of less than an hour.

This Wednesday morning, almost 100% of the service had already been recovered for the more than 42 million CFE clients affected throughout the country, but the risk of more blackouts was not ruled out.

The government of Andrés Manuel López Obrador pointed to two factors as the cause of the problems.

On one hand, the severe winter storm that has hit Texas, the southeastern US state that supplies natural gas to several electricity generating plants in Mexico for days.

On the other hand, there is the price of that fuel, which has risen 5,000% in recent days according to CFE calculations.

But why was Mexico, being a fuel exporting country, affected in such a way?

Analysts consulted by BBC Mundo explain that there is a double dependence: on natural gas as a source of electricity generation and on the United States as the country that supplies it.

However, they also point to shortcomings in the energy policy of the Mexican governments.

How big is the dependency?

Mexico had a solid energy infrastructure throughout the 20th century that led the country to be one of the main oil and natural gas producing countries for many years.

But the boom times of these industries, controlled by the state for most of the last century, began to decline in the 2000s, to the point that years ago Mexico it lost its energy independence.

Official figures from the Mexican Ministry of Energy indicate that the country had a deficit in the energy trade balance of US $ 18.8 billion in 2017.

Much of this is due to the drop in oil exports.

However, regarding the natural gas with which the electricity generating plants in Mexico operate, the imbalance is much more marked than with oil.

In 2018, when López Obrador came to power, Mexico It barely exported US $ 28 million in natural gas, but brought in around US $ 7.32 billion from abroad. And there are no big differences in the following years.

This fuel is used to generate around 60% of the country’s energy. And about 80% comes from U.S, mainly from the fields producing Texas.

In turn, the country only has space to store a little more than 5 days of natural gas reserves.

“When you have this dependency, you have a very serious problem. It did not start yesterday, so it was foreseeable that at any moment a topic of these could occur [apagones en el país]”, The researcher Francisco Ortiz, from the Universidad Panamericana tells BBC Mundo.

“It is a national security problem that has not yet been addressed,” he adds.

How do you explain?

The double dependence, on natural gas and on the United States, has been consolidated in the last two decades.

Whereas between 2000 almost 20% of electricity was generated with natural gas, by 2020 that figure tripled. And fuel imports went from 51% to almost 80% in that period last year.

In the last decade, 7 of the 24 natural gas connections between Mexico and the United States came into operation, being Texas the state with which it connects the most, with 15 outlets.

López Obrador and his government attribute this trend to an “abandonment” of the national energy industry by the last governments of Mexico, to favor private companies.

“For many years no plan to extract gas was put into practice. We have gas in the country but they did not care because the business was to buy gas because the purchase of gas was the moche [soborno]”, Said the president this Wednesday at a press conference.

“We need to be self-sufficient, be prepared for any emergency,” he added, explaining that another factor in the problem is the rising cost of natural gas.

The CFE reported that the cost of a natural gas unit (MMcfd) increased from US $ 3 per unit of volume, at prices that fluctuated between US $ 200 and US $ 600.

Ortiz explains that the cost increase is logical, since there is “an excessive demand and there is not much gas” in Texas. But the bottom line of the problem, he points out, has been the policy of Mexican governments in the last three decades towards state-owned companies, such as Petróleos Mexicanos (Pemex).

“The guideline for Pemex since the 1990s was to generate more money, selling more oil and less gas. And the gas was put aside. At present, 15% of the gas that comes with oil is burned or released into the air, because there is no priority to generate gas, ”he explains.

“The right financial decision was to buy it. The socioeconomic decision has not been the correct one. So, Mexico’s energy dependence on gas is tremendous, ”he continues.

As official figures show, since 2010 the progressive decline in natural gas production in Mexico began. In 2020 imports were already double (5,653 MMcfd) of what was generated in the country (2,517 MMcfd).

Added to this is the lack of infrastructure to store natural gas in Mexico.

“This type of event shows the importance of a diversified energy matrix, but at the same time of more investment in infrastructure and in the natural gas sector. Because Mexico has very little storage, ”analyst Valerie Rodríguez, from the Zumma consultancy, tells BBC Mundo.

Wasn’t such a problem foreseen?

López Obrador’s temporary solution is to buy natural gas that is injected into the system through four tankers that will reach ports in the northeast of the country. In addition, it has ordered the expansion of production in generating plants that use coal or fuel oil.

Its long-term strategy is to sustain an energy project for the recovery of state-owned companies: “Now what we want is, without letting individuals stop participating, to consolidate the Federal Electricity Commission and for the surrender policy to stop. So that’s what is being done, “he said Wednesday.

However, the immediate crisis could continue after the governor of Texas, Greg Abbott, issued a restriction on the sale of natural gas to out-of-state customers.

Francisco Ortiz considers that Mexico never considered that an environmental problem, such as the most serious winter storm in 30 years that it lives Texas, could put the Mexican electrical system in trouble.

“You always trusted that you would have the gas. It had been discussed among academics what would happen if the previous US government, which had drastic decisions, decided to turn off the gas. The answer was that it is a private business that could not be closed,” he explains.

Given this, he considers that solutions must come from specialists, not from political strategies.

“This must be evaluated in a much more technical way, than with an ideological vision. The ideological policy decisions have sacrificed technical issues ”, says Ortiz, who suggests that the implementation of the fracking it could be the most viable alternative to solve the dependency in the shortest term.

“In 10 years, the US went from being an importer of gas and oil, to being an exporter. Today it is the first oil producing country in the world with the use of fracking. Here you have to regulate it, but Pemex has been using it, ” he said.

Max Von Hausen, an energy consultant, points out that “Mexico is too big and has many resources” to be able to diversify its energy sources.

“The south has many resources. But in such a large country, with a lack of infrastructure, you need a large investment. The government and private investment can meet the demand together”, he tells BBC Mundo.

“In Germany we not only have a winter one week, as in the north of Mexico, but about six months of the year. So that is something important”, he warns.

But for now Ortiz believes that it is “practically impossible” to achieve energy sovereignty in Mexico in the short term.

“You can’t change that from one day to the next. There are no miracles and no magic wand. Not having reservations beyond 5 days is a very dangerous risk”.