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On November 4, Bloomberg was the sole organization of note that reported Mexico's Energy Minister, Jordy Herrera, announced his country is scrapping construction plans for 10 new nuclear power plants once slated to help expand Mexico's power generation fleet by 36 gigawatts during the next 15 years. Shale gas will be used in the new fleet of power generators instead, which should make refiners, chemical manufacturers, and other natural gas intensive industries take notice.
The successful search for unconventional resources has not only remade the energy markets of the U.S. and Canada, but it now is clearly remaking Mexico's as well.
Amid the rising discoveries of shale gas in Mexico, the nation is "changing all its decisions, amid the very abundant existence of natural-gas deposits," Herrera reportedly said.
With abundant natural gas available locally, Herrera was cited as saying that the cost advantages of natural gas are preferred over nuclear fuels for the country’s plans to raise power generation capacity.
The expansion plan, according to the report, will see Mexico's power generation fleet grow from a current level of 50 gigawatts (GW) to 86 GW during the next 15 years.
Along with natural gas replacing nuclear fuel in new plants, the report said that Mexico's state-owned utility, Comisión Federal de Electricidad (CFE), is also "reconfiguring other facilities to replace the use of other fuels with natural gas."
Mexico is a consumer of natural gas, petroleum liquids and coal for power generation, according to the Country Analysis Brief for Mexico as maintained by the U.S. Department of Energy.
Mexico's prospective announcement that favors natural gas is reminiscent of an earlier announcement by Germany in May 2011. Then, Germany announced plans to phase out the use of 17 nuclear reactors representing 20.3 GW of capacity.
Given what's at stake in Mexico, the latest of the two announcements made from the Latin American nation is clearly also the greatest in terms of its impact on natural gas consumption.
Excluding the reconfiguration or repowering of Mexico's existing power plants, our analysis of the potential natural gas consumption by 36 gigawatts of new gas-fired power plants would mark a massive new potential energy demand for North America.
Assuming a combined cycle heat rate (6,719 Btu/kWh), and a 90% utilization factor for base-load capacity, we calculate that 36 gigawatts of new gas fired power plants could consume around 5.1 billion cubic feet of natural gas per day.
That rate equates to about 1.8 trillion cubic feet (Tcf) per year, which is nearly double Mexico’s 2010 natural gas consumption rate of 2.2 Tcf.
Herrera, who was just appointed to his post in September, has quickly become a vocal and frequently enthusiastic advocate for Mexico's burgeoning shale gas industry.
On October 20, Herrera told an audience at the National University of Mexico (UNAM) that the country could soon become one of the world's top producers of natural gas.
Later, on October 24, Herrera spoke at the Forum on Petroleum & Energy and said that "shale gas is going to transform the energy outlook [and] the face of energy, in this country."
Because of local shale-gas potential, Mexico's Herrera said, "the expansion of infrastructure should be envisioned. Presently, the CFE has tenders for three gas pipelines outstanding. Pemex will launch two other tenders. [Combined,] these will expand the network capacity by about 40%."
Herrera added on the 24th that he sees a potential for Mexican shale gas to mirror the achievements of the shale gas industry in the U.S., which expanded natural gas supply in just two years to as much as a 94-year supply.
Again on October 27, Herrera said that base case estimates by Pemex suggest Mexico may have between 150- and 450 billion cubic feet of gas in potential reserves. That, he estimated, at current production rates, could represent a 60-year supply.
On November 17, Herrera was quoted by Bloomberg at an energy conference saying that Mexico's shale gas resources could sustain US$10 billion in annual investments and could generate 1.5 million direct and indirect jobs over the next decade and a half.
"We know it will be a very important factor in the development of our country," Herrera was quoted as saying, adding that the development of internal shale gas resources could obviate the need for natural gas imports otherwise expected to grow at an annual 6.5% clip.
Speaking at the 28th National Chemical Industry Forum on October 27, Mexico's Herrera told those assembled that Mexico's chemicals manufacturing industry will see investment like that in the country's upstream, midstream and power industry aimed at reaping the benefits of the country's unconventional natural gas resources.
For several quarters, Mexico has been planning a petrochemicals renaissance enabled by shale gas and natural gas liquids from shale sources.
Herrera said that Pemex is revising its business model to modernize and integrate across value chains with greater economy of scale. Focus areas within the chemicals industry include production of ethylene, aromatics, and ammonia.
To illustrate the magnitude of what is coming; Herrera said that 3.3 billion pesos will be invested in the chemicals industry during the coming year, more than in the last four years combined.
Herrera also highlighted the economic and jobs benefits coming to the state of Veracruz via the Ethylene XXI project which will see US$3 billion in long-term private investment and thousands employed to establish a 1 million-tonne-per-year ethylene plant in Coatzacoalcos with downstream polyethylene and polypropylene capabilities.
The news flow on this momentous development has been rather muted given the magnitude of the recent announcements coming from Mexico's Herrera.
It will be interesting to watch for the reaction from the climate and carbon community who will likely have much to say about fossil fuels stepping in to replace essentially carbon-free nuclear fuel at up to 36 gigawatts of new power plants.
Multiplying the potential annual gas consumption by a carbon equivalent emission factor as recommended by the California Public Utility Commission allows us to estimate that the fuel swap could expand Mexico's carbon footprint by 116 million metric tonnes per year of carbon-dioxide (CO2) equivalent emissions.
As large as that figure might seem, the emissions from the Mexican oilfield and pipeline operations upstream of the natural gas power plants are not even included in that estimate.
For comparison, the entirety of Mexico’s fossil fuel related CO2 emissions in 2008 totaled to 476 million metric tonnes of CO2 equivalent, according to the figures tracked by the U.S. Carbon Dioxide Information Analysis Center which is part of the U.S. Department of Energy's Oak Ridge National Laboratory.
One reason for the relatively muted coverage on this massive shift in Mexico is that carbon-conscious environmentalists are likely much more attuned to looking across the northern U.S. border rather than southward.
In the province of Alberta, Canada, there one finds the region where oil sands, another type of unconventional oil, are mined, extracted and upgraded.
The Government of Alberta's Energy Department website shows that in 2008, the oil sands operations involved in mining, in-situ extraction, and upgrading accounted for 34.8 million metric tonnes of CO2 equivalent.
Amazingly, the Mexican energy minister's November 1 announcement of a nuclear to gas switch for future power plants represent three times the carbon than that produced by the oil sands region of Canada.
The news is somewhat mixed for the petroleum refining industry in Mexico and those who import fuels to this nation. Petroleum refining processes use a tremendous amount of energy for the heating, cracking, and other energy-intensive operations at a modern refinery. Older refineries are generally less efficient as well.
In the U.S., independent refiners such as Valero Energy Corp. and others have long sought to minimize the energy intensity per barrel of manufactured refined product. Historically, the cost of natural gas has been one of the highest marginal costs on refiner income statements, especially when natural gas was priced several multiples of where it is today.
With the abundance of natural gas found in the U.S. over the last few years, natural gas costs have declined although usage generally has not. In fact, there is a potential for continued increases in demand for natural gas in refining. A heavier crude diet and a cleaner product slate are driving ever higher uses of hydrogen in cracking and desulfurization processes, for instance.
That means more natural gas will likely be demanded for refining not only in the U.S. but around the world as crudes tilt heavier and fuel specifications tighten.
With all the competition for natural gas in Mexico from the petrochemical and the utility sector, it may not be rational to expect energy cost savings at Mexican refineries. So it may be status quo in the refining utility block – meaning, incremental capital projects will likely be implemented judiciously to slowly but surely improve the energy efficiency of petroleum refining processes as natural gas prices may remain range-bound.
Therefore, exporters of refined products from regions whose refiners benefit incrementally from advantaged natural gas prices may continue to benefit from sale of advantaged refined products into Mexico, at least until the new wave of refineries starts up later this decade.
On the other hand, the use of natural gas as a transportation fuel will likely also be priced out of the realm of possibility by competing utility and petrochemical demand for natural gas.
Incrementally, while Mexico's use of natural gas in the utility and chemical industries may not help lower refinery operational costs, these voracious demand trends could also forestall any potential move to natural gas as a transportation fuel, thereby preserving the dominance of refined products in the transportation markets.
Contact the author, Greg Haas, at firstname.lastname@example.org.