Access to shale gas from the United States may lower the burden of Mexico’s historically high prices of electricity, according to Fitch Ratings.
Electricity prices in Mexico have been high compared with international prices. US industrial electricity prices are about 70% higher, mostly due to Mexico’s reliance on oil-based production. Lower oil prices have contributed to reducing this gap, increasing manufacturing output, although not on a sustained basis, Fitch Ratings said in an analysis on Tuesday.
“Fitch believes access to US shale gas would reduce fuel costs, contributing to more competitive prices that would encourage international industrial investors to bring operations to Mexico. The price of fuel determines about 80% of the cost of electricity in Mexico. Some of the potential savings in power generation can be attributed to the country’s ability to tap into the abundant gas resources coming from US shale fields.”
Mexico’s Comision Federal de Electricidad has plans for a large expansion of the national network of gas pipelines by converting seven plants by the end of 2016 and building nine new combined cycle power plants.
Mexico plans to invest US$146 billion in the electric system by 2029. An investment of USD33 billion will strengthen the T&D networks, reducing losses, increasing connectivity and helping fuel supplies reach power generation sites. An additional US$113 billion investment in generation will help create an energy matrix based in natural gas and renewables, adding 60 gigawatts of additional installed capacity, with more than 40% related to gas, Fitch said.