Mexico mulls alternatives to natural gas for power generation

Mexico City (Platts)--25Apr2005

Faced by lagging natural gas production and a fast-rising bill for imports,
Mexico is seeking alternative fuels for power generation, an energy ministry
official said Monday. The alternatives being looked at in a policy review
include fuel-oil, petcoke and refinery residuals, the official added.

State-owned oil and gas company Pemex currently produces just over 4.6 Bcf/d
of gas, still below the level of five years ago and well short of the target
of just under 6 Bcf/d set for the end of 2006. For the first time, Mexico last
year imported more than 1 Bcf/d of gas, 17% above 2003 levels, and all of it
from the US. The gas import bill in 2004 came to $2.443-bil, a hike of 31.3%
and accounting for more than a quarter of the nation's overall trade deficit.
Meanwhile, spurred by growing consumption from the electricity industry,
Mexico's gas consumption grew by 8% in 2003 and only slightly less in 2004.

With prices and consumption continuing to rise, Mexican industrialists are
clamoring for measures to cut their fast-rising costs, while domestic gas
consumers have already been given a small subsidy. Last week as the subsidy
was announced, Energy Secretary Fernando Elizondo explained how the country
came to be so dependent on natural gas imports. Ten years ago, when the
decision was taken to go for gas-fired combined-cycle plants, natural gas
prices were low, the nation's pipelines had excess capacity and the government
was under heavy pressure to clean up the environment. "None of that holds true
now," he added. Gas prices are high, pipeline bottlenecks plague distribution,
and new technologies mean that other fuels can be environmentally friendly
too. Mexico is planning a 60% increase in electricity generating capacity by
2012, with gas's share of the total rising from a quarter to more than half.

This story was originally published in Platts Natural Gas Alert
http://www.naturalgasalert.platts.com

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