Situation in Mexico
NATURAL GAS AND ELECTRICITY SHORTAGES IN MEXICO DUE TO A POLAR VORTEX IN THE SOUTHERN US AND NORTHERN MEXICO SUMMARY OF MAIN EVENTS: The polar vortex that affected the south US and northern Mexico, with unusual freezing temperatures for an extended period, affected the gas production and distribution infrastructure in the south of the US. Simultaneously, the cold weather increased the domestic demand for natural gas for heating and electrical generation systems. The Texas governor issued a mandate to preserve the available natural gas for domestic consumption and essential activities (heating and electricity generation). The effect of this drastic shift on the demand/supply also caused a sudden rise in the prices of natural gas and electricity, in some cases more than 100%. The combination of these facts (frozen infrastructure and distribution pipelines, the reserve of natural gas for local US consumption, and the rise of prices) made that the availability of natural gas to be exported to Mexico dropped dramatically. Mexico is heavily reliant on natural gas imported from the south USA to feed the combined cycle (gas/fuel oil) power generation plants and for industry and domestic consumption, particularly the ones located in northern Mexico. The result of this crisis is that the Mexican electricity generation capacity dropped drastically, causing unscheduled power shutdowns in northern states, from Chihuahua, Nuevo León, and Tamaulipas that lasted a couple of days. The Mexican electrical grid is also interconnected, which caused imbalances in power charges that forced the Mexican power company (CFE) to program shutdowns in other sites in Mexico. CFE company is recovering the power generation capacity by shifting to fuel oil available, as well as importing natural gas from other countries. Prices for electricity and natural gas have also risen in Mexico by more than 66% vs. the previous week, but it could increase even more.
AVERAGE PRICE SIN
1,660 MXN/MWH vs YTD +100 vs SEM 06 +66.8%
HENRY HUB PRICE
5.25 USD/MMBTU vs YTD +69.6% vs SEM 06 +66.6% SOURCE: ENGIE, CENACE
The Ministry of Energy, through the National Center of Natural Gas Control (Cenagas), issued a critical alert to the National system of transport and warehousing of Natural Gas (Sistrangas), asking users to stick to the programmed supply of natural gas and warning of penalities should companies does not abide by the requested demand. On the other hand, natural gas suppliers in Mexico have notified users to reduce consumption from 50% to 80%, given the “Force Majeure” situation, until further notice. Forecasts are that until Feb. 21, gas imports from the USA will be reenacted.
SIDE EFFECTS FOR MANUFACTURING OPERATIONS: • Government services such as customs and the website for international trade (VUCEM) will be closed in border states for • Due to roadblocks for bad weather conditions, border crossings could suffer delays. • Important companies are already making production shutdowns, such as automotive OEMs, affecting the whole supply chain. • Workers in home office are affected by power shutdowns and internet service downtimes.
RECOMMENDATIONS FOR OUR CLIENTS • Reduce gas and electricity consumption as per suppliers and authorities request • Closely monitor gas and electricity prices and • Review contracts with suppliers for applicability of Force Majeure clauses • Monitor potential shutdowns from clients and suppliers • Follow the evolution of climate for potential new cold waves • Review power backup systems for essential manufacturing and IT equipment