Renewables could reduce Mexico’s energy security risks – report

Mexico could cut its overwhelming dependence on the U.S. for gas and dramatically enhance its energy security if it accelerated deployment of renewable energy, according to a new report.

Mexico is highly dependent on gas from the U.S., particularly from the Eagle Ford and Permian basin shale formations in Texas. Mexico imports about three-quarters of its gas from the United States, an import dependence that has grown at an alarming rate, up from around 40 percent a decade ago.

Against the backdrop of Trump’s trade war and growing tension between the two countries, Mexican officials have quietly begun to worry about the security threat from the U.S. government. In particular, the prospect of the U.S. cutting off gas supplies to exert geopolitical pressure on the country is no longer seen as out of the realms of possibility.

But gas import dependence could be slashed by as much as 20 percent by 2030 if Mexico deployed 46 gigawatts of solar and wind, according to a report from Ember, a global clean energy think-tank. That would avoid roughly 384 billion cubic feet of gas, eliminating US$1.6 billion in annual expenditures on imported gas from the U.S.

“Mexico is exposed. Reliance on imported fossil fuels for electricity generation jeopardises the government’s ability to ensure a reliable and affordable energy supply for its citizens,” Wilmar Suarez, Latin America analyst at Ember and author of the report, said in a statement. “Clean energy is a win-win.”

The budgetary savings of achieving 45 percent clean energy by 2030 would be ten times larger compared to a slower transition of reaching just 36 percent renewables.

Ember said other countries in Latin America have demonstrated that rapid deployment of renewable energy is possible. Chile has nearly tripled its solar generation in the last five years, and Uruguay generates more than 26 percent of its electricity from wind, up from just 1 percent in 2013.

One of the hurdles for Mexico is to cut the time it takes to issue permits, a protracted process that for renewable energy projects can take as long as two to four years. In Brazil it only takes one to two years, and in Uruguay, sometimes as little as six months.

The installation of 46 GW of solar and wind by 2030 could result in the creation of more than 850,000 jobs, Ember estimates.

It is unclear if Mexico will wholeheartedly embrace renewable energy, although President Claudia Sheinbaum pledged to do so when she took office. Former President Andrés Manuel López Obrador de-prioritised renewables in favour of a state-led focus on oil production and refining.

President Sheinbaum is promoting renewables but is also seeking to spur domestic drilling to increase Mexico’s gas supply. However, high costs of production will make it difficult to dramatically increase gas output. 

Meanwhile, Mexico has simultaneously embraced a separate strategy of building up an LNG sector, hoping to capitalise off interest from LNG developers to ship U.S. gas to Asia.

But LNG could exacerbate energy security and economic risks by increasing dependence on the U.S. to an even greater degree. If Mexico brings LNG terminals online, it will put more upward pressure on gas prices, stretching supplies available for the domestic market.

For now, LNG projects in Mexico are facing formidable obstacles. As Gas Outlook previously reported, organised crime, political uncertainty, and financial risks have resulted in stalled momentum.

If major LNG projects fall apart, as some analysts suspect might occur, that could put the focus back on renewable energy as a key energy security strategy.

(Writing by Nick Cunningham; editing by Sophie Davies)