Mexico’s newest oil refinery is not yet operational since it is behind schedule and over budget, but President Andrés Manuel López Obrador announced the refinery as a centerpiece to his goal of securing Mexico’s energy independence, which President Trump had secured for Americans in 2019 and which President Biden is destroying through his energy and climate policies. Mexico is ignoring (as are China, Russia and India) President Biden’s goals of ending the use of oil and natural gas, while pushing electric cars and renewable energy. The new refinery owned and operated by state-run oil company Pemex will help Mexico cut its dependence on foreign gasoline and diesel. For Mexico, sovereignty over energy production is important. In the 1930s, President Lázaro Cárdenas seized the assets of foreign oil firms he accused of exploiting Mexican workers and nationalized the industry—an event still celebrated as a national holiday.
Mr. López Obrador’s goal is to guarantee Mexican energy sovereignty, returning the country to the glory days when oil created thousands of jobs and helped bolster the economy. As a result, Mexican regulatory agencies are doing the opposite of what Biden’s regulatory agencies are doing – greenlighting projects investing in conventional energy. Mexico is keeping renewable firms out of the market, blocking their power plants from operating, and running fossil fuel-powered plants owned or run by the state. Mr. López Obrador indicates that while the transition to renewable energy will happen eventually, Mexico is simply not ready. Maybe he is seeing wisely that the electric grid and renewable technologies are not ready to make the huge leap and carry imposed costs on the system typically ignored by their promoters and media.
Mexico generates about 70 percent of its energy from fossil fuels, while renewables and nuclear power provide the rest. Mexico is planning to invest $6.2 billion to build 15 fossil fuel-powered plants by 2024. But, the country is still investing in renewable energy and is planning to spend about $1.6 billion to build a large solar plant in northern Mexico and to refurbish more than a dozen state-owned hydroelectric plants. As of June, however, over 50 wind and solar projects proposed by private and foreign firms were awaiting permits, with some applications dating back to 2019—the last time any new permits for private energy companies were approved. They represent almost 7,000 megawatts of renewable energy capacity. In 2019, López Obrador also canceled a public auction for the rights to generate wind and solar power.
Mexico has given preference to energy from coal, gas and oil plants owned by the state over privately owned renewables when dispatching them into the national grid, citing the reliability needs of the energy system. Government authorities prevented at least 14 privately owned wind and solar plants that have already been built from operating commercially. The Mexican President said his country would be open to foreign investment in renewable projects, but only if the energy ministry was in charge of planning and the state-owned utility company had a majority share.
Last year, his governing party approved a bill to rewrite rules governing how power plants inject electricity to the grid, reversing previous changes that often required renewable energy to be dispatched first, instead prioritizing state-owned plants. The new law was upheld by the Supreme Court in April, but the issue remains tied up in several lawsuits.
As a result of these changes, Mexico is not expected to meet its pledge to reduce its carbon emissions despite Mr. López Obrador still insisting that Mexico will meet its goal under the 2015 Paris Agreement to produce 35 percent of its power from renewable sources by 2024. A government report released this year showed that the country is years behind that target.
Mexico Plans to Export LNG, Using U.S. Natural Gas
Today, Mexico imports nearly all the natural gas it uses, but it intends to become one of the world’s top exporters of LNG, using American-produced natural gas. The country’s physical proximity to U.S. natural gas reserves positions it to supply American gas to Europe and Asia. Eight liquefied natural gas export projects are proposed south of the border with an annual combined capacity of 50.2 million tons. Some of the facilities plan to come online next year. Mexico’s President wants facilities in the Pacific ports of Topolobampo and Salina Cruz, as well as in Coatzacoalcos in the Gulf state of Veracruz. These plants have proven more difficult to build in the United States, especially as FERC, under Chairman Richard Glick has contemplated applying new “climate change metrics” to proposed pipeline projects.
Mexico wants to be energy independent and in control of its energy sources and technologies. It also sees fossil fuels as a way to achieve that goal, giving priority to them in the dispatch order, rather than to renewable energy. That allows their fossil fuel plants to recover their costs, operating at more than 80 percent of their capacity. When natural gas and coal plants are used solely as back-up to intermittent wind and solar plants, they are forced to operate inefficiently at low capacity factors and are unable to recover their costs, thereby being forced to retire. Mexico is wisely not falling into that trap, which is increasingly affecting electricity prices in the United States.