Energy Analysis Mexico

Douwe Haringa (S2715678), Tom Goorhuis Oude Sanderink (S3530620), Asmaa Tabanja (S4068017),
Pratheek Yashas (S4004876), Youssef Tahri (S4041682), Dhaifalla Alotaibi (S3087761)
─

Mexico has signed and ratified both the Kyoto protocol and the Paris agreement ("Mexico |
UNFCCC", 2019). As a signatory, Mexico has to put effort in reducing its carbon emissions. Emission
reduction policies are in place, but insufficient to result in a < 3°C warming scenario ("Mexico |
Climate Action Tracker", 2019). We aim to consult the government about future plans in order to
improve their effectiveness to reach the ambitious goal of less than 1.5°C warm-up as set by the
Paris agreement.

First, we will provide a detailed overview of the energy system of the country by analysing its various
components in a systematic way. For this we used a PESTLE approach: the political/legal aspects will
be covered in the policy paragraph, economic aspects will be covered in the energy consumption
and international market paragraphs, technology has its own paragraph and societal and
environmental aspects are discussed in the geographic and demographic overview.
In a follow up report, we will suggest adaptations and strategies to be made to reach the goal set by
the Paris agreement.
 Systems Integration and Sustainability 18/12/2019

Geographic and demographic overview

Geography
In order to assess the possibilities regarding the energy system, the geographic properties of Mexico
should be analysed. Located at 23° N and 102° W, Mexico is bisected by the Tropic of Cancer. This
results in a temperate climate in the north and a tropical climate in the south with wet and dry
seasons (Willey & Palerm, 2019). Due to its geographic location, Mexico has a high potential for solar
energy production (Oseguera, 2010).
Mexico is a large country featuring high mountains, low coastal plains, high plateaus and deserts
with oil, gas, timber, silver and other metals as main natural resources. Extracting those resources
and clearing forests for pastures has resulted in a lot of environmental problems, most notably soil
erosion and water pollution and scarcity ("Mexico — The World Factbook - Central Intelligence
Agency", 2019). Furthermore, Mexico is located upon three tectonic plates resulting in significant
seismic and volcanic activity, but also potential for geothermal energy harvesting (Richter, 2019).

Demographics
In order to give advice for future energy strategies, it is necessary to take population (growth) and
high population centers into account. In these regions, energy security can be challenging while
keeping emissions to a minimum.
Mexico is the 10th most populated country in the world with approximately 125 million inhabitants
and a median age of 27.5. This number is expected to rise to a maximum of 150 million in 2050
before slowly descending again. Of those 125 million people, 80% live in urbanized areas.
The GDP per capita is $17,000 which is the world average, establishing Mexico as an upper middle
income country. However, as indicated by a Gini index of 48, there is a significant economic
inequality between social classes. Data was taken from Mexico - Our World in Data.

Energy consumption and system overview

The energy system of Mexico is mostly dependent on fossil fuels. There is a total energy production
of 159 Mtoe (Millions of tonnes of oil equivalent), while the total primary energy supply is 183 Mtoe.
This means that Mexico does not produce a sufficient amount of energy for its own consumption.
The numbers and figures used within this chapter came from the International Energy Agency (IEA,
2019).

Total primary energy supply (TPES)

As can be seen in figure 1 below, the biggest portion of the TPES comes from fossil fuels, namely oil,
gas and coal. Only 20 Mtoe, which is approximately 11%, comes from renewable energy sources
while this percentage has been higher before. Within this graph we can recognize that the amount
of oil used for TPES is in decline where natural gas is increasing rapidly, it almost tripled from 23
Mtoe in 1990 to 68 Mtoe in 2018.

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While the use of coal is increasing a bit as well the amount of renewables is more or less the same
since 1990, where TPES from wind & solar even declined in 2007. With an increasing TPES we
recognize an increase in the final consumption of electricity as well. This has grown from 100 TWh in
1990 to 341 TWh in 2018. This increase in electricity is mainly generated by natural gas, which
explains the increased use of natural gas in the energy mix.

Figure 1: Total primary energy supply (TPES) (IEA, 2019).

From exporting to importing country

Mexico went from an exporting country to an importing country as can be concluded from figure 2.
This increase comes mainly due to the additional natural gas that has been used for electricity
generation, mainly since 2005.

Figure 2: Net energy imports (IEA, 2019).

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Position in the international market

In order to completely analyze the country’s energy system, it’s important to investigate Mexico’s
position in the world economy, especially the energy trade sector. Mexico’s GDP ranks 15th in the
world in 2018 (Investopedia, 2019). This can be attributed to its flexible and liberalized trade. Free
trade agreements led to the country being a strategic manufacturing center with a high value-added
export production. Moreover, sharing a border with the USA, having ample access to both oceans
and a stable economy with a low inflating ensures an important international and regional role (IMF,
2018).
Many trade agreements are in place. Firstly, the NAFTA trade agreement in 1994, with the US and
Canada, which is considered the largest in the world. Then, multiple trade agreements with the
European Union, many countries in central America, and others around the world were drawn up.

U.S.-Mexico-Canada Agreement

In 2018, Mexico signed the U.S.-Mexico-Canada Agreement (USMCA), with the aim of strengthening
the energy trade system integration and energy security in North America to eliminate crude oil and
gasoline tariffs. It also secured and supported the recent US investments in Mexico’s natural gas and
oil industry. The US plays a critical role in Mexico's international trade. Mexico is currently the US’s
3rd largest goods trading partner with about $600 billion in total goods trade in 2018 (USTR, 2019).

US-Mexico Energy Trade

The trade between Mexico and the US is especially critical for the energy trade sector due to the vast
shared borders and the natural gas pipeline between these countries. In 2018, the US imported
about 20 million barrels of crude oil from Mexico. On the other hand, Mexico imported about 35
barrels in 2018 of petroleum products for its manufacturing industries (USTR, 2019). Most of the
fossil fuel energy is transported through the pipelines between the two countries, especially natural
gas. The U.S. exports to Mexico is around 54% of the overall U.S. gasoline exports in 2016 (EIA, 2019).
There is also a big opportunity in the renewable energy trade between the US and Mexico that could
enhance the renewable energy sectors in both countries for investment in manufacturing of
renewable energy facilities in Mexico, and renewable energy trade from solar and wind energy
(IADB, 2019).

Technology
Mexico is the 7th biggest oil producer in the world and this is reflected in its energy demographic.
However, “From June 2016 to June 2017, the capacity for the generation of electricity from
renewable energy increased by 6.9%. Renewable energy accounted for 8.3% of its total primary
energy supply and for 15.2% of its electricity generation in 2015” (IEA, 2017a).

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Solar Energy
According to the National Solar Energy Association of Mexico (ANES), “60 percent of the new energy
that will be injected into the grid from 2018 will be from solar power” (Mendoza, 2018). Solar energy
can be used to generate electricity or to heat water, and buildings through Photovoltaic cells, solar
thermal power plants etc. Mexico falls in the region where the radiation exceeds 5 kWh/m². There
have been more photovoltaic systems installed in Mexico in the last two years than in the last three
decades.

Geothermal
Mexico is the 6th country in terms of the production of geothermal energy. Geothermal energy is
local heat from the subsurface for the heating of houses, industry or for power generation. The
naturally present hot water is pumped out of the underground from which heat is removed and a
pump ensures that the cooled water flows back into the same layer after which it heats up again.
Today, geothermal has a total installed capacity of 1017 MWe from 220 production wells. This
accounts for 3% of the total electricity production.

Hydropower
Hydropower is the energy produced from the kinetic energy potential of flowing water. The volume
of the water flow coupled with the difference in height determines the amount of available energy in
moving water. At the end of 2016, 85 hydroelectric plants with a total installed capacity of 12,589
MW generated 30,909 GWh electricity. Power generation from hydropower only increased by 1.8%
from 2006 to 2016. The Secretariat of Energy (SENER) expects that the capacity for the hydroelectric
generation will increase by 13% from 2017 to 2031. (SENER, 2017a; SENER, 2017b)

Policies regarding technologies and energy sources

Mexico adopted an Energy Reform in 2013, meant to be implemented in 2018, with the aim of
improving different energy sectors. Several analysts agree that, prior to this reform, the country’s
economy was not entirely modernized, mainly due to obvious failures and fragilities in both oil and
electricity sectors. The oil industry was entirely owned by the state company Pemex, and due to
different restrictions and inadequacies, rising from its monopolistic nature, the oil production was
decreasing dramatically which was affecting the economy. Similarly, other restrictions imposed on
the state owned electricity company CFE (Comisión Federal de Electricidad) and the increase of
electricity prices, resulted in a lack of competitiveness and consequently hurting the economy. In
response to these circumstances, and taking into account renewable energy objectives, the Energy
Reform was established (Wood, 2018).

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Relying on the IEA report (IEA, 2017), the following presents some of the most important policies in
different sectors:

● Oil & Natural Gas

○ Allowing private parties to be involved in investment and technology usage for
hydrocarbons.
○ For oil: reducing taxes, facilitating access to equity capital and allowing more
flexibility in related sector’s operations (Wood, 2018).
● Electricity
○ Introducing private subsectors, mainly within the CFE, in order to encourage
competition, vary opportunities and reduce prices.
○ Applying a quota system CEC (Clean Energy Certificate) to reach 35% electricity from
clean energy by 2024; the CEC obliges suppliers to meet the quota and allows
generators to make profit from excess clean electricity.
○ Farmers and households benefiting from subsidies between 60% and 70%.
● Renewables
○ The goal of 35% of clean energy implies expenditure and investment increase in
renewable sources.
○ Investing in new technologies and renewables to reduce 30% of GHG emissions by
2020; Carbon Capture is implemented by a 10-year strategy and is considered as one
of the most important technologies in the country.

Development in recent years

As stated in Policies, congress allowed foreign investments in the energy sector. Later on, the
congress approved a new regulatory framework after which Mexico witnessed an extreme and rapid
opening of its oil, gas and electricity sectors, as well as attempts to reform the national oil company,
Pemex, and the national electricity utility CFE (The Comisión Federal de Electricidad) (Wood, 2018).

Oil
In 2003 Mexico hit a historical peak of oil production, at 3.4 million barrels a day, and it became a
critical component of government finance (33% of revenue). In recent years, more than 100
contracts for exploration and production have been signed. The value of these investments has
exceeded $160bn (Wood, 2018).

Renewables
Mexico has developed substantial renewable electricity capacity. Out of 73 (GW) of installed
capacity, 23% is renewable energy (Viscidi, 2019), including hydropower, wind, geothermal, biomass,
and solar. “In 2015, Mexico was among the top 10 destinations in the world for clean energy
investment, bringing in $4 billion” (Viscidi, 2019). Mexico is among the top three countries in Latin
America for both wind and solar potential. Between June 2016 to June 2017, the electricity
generation capacity from renewable energy increased by 6.9% (van Schagen Mendoza, 2018). In
mid-2018, the rig count began to rise for the first time in years. Pemex is now partnering with private
and foreign firms in oil exploration and production.

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Summary
The report provides an overview on the most important energy aspects of Mexico. With an energy
production of 159 Mtoe and a supply of 183 Mtoe, Mexico relies on import to meet its demand. The
most important energy sources are oil and gas, with a relatively small reliance on coal minimal share
of renewables. The geographical location of the country offers a great potential for solar, wind and
geothermal energies, while it is still underexploited. Additionally, Mexico is the 10th most populated
country, resulting in challenges of meeting the increasing power demand while trying to reduce GHG
emissions and environmental impact with its population growth. Nevertheless, investments in
renewable sources are increasing. The shift towards this promising sector is clearly witnessed
through trade agreements with the US and European countries, as well as recently developed
policies.

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