Mexico Announces Infrastructure Projects

(Platts, 5.Oct.2020) — Mexico announced on Oct. 5 a set of infrastructure projects worth almost $14 billion to reactivate the economy, including a new coker for one of its six refineries as well as a liquefaction plant to export natural gas.

The federal government and private industry will begin working on the set of 147 infrastructure projects, including five energy projects, jointly beginning in 2021, requiring total investments of $13.895 billion.

“The public sector alone could not reactivate the economy as needed,” President Andres Manuel Lopez Obrador said during his daily press conference.

The announced investments represent the first wave in planned projects, and account for little over 1% of the country’s nominal GDP, Arturo Herrera, secretary of the Treasury, said during the presentation.

The final plan, expected to be announced by the end of 2021, will eventually reflect almost 25% of Mexico’s GDP, Herrera said during the event, where members of the Mexican business community were invited.

The plan includes the construction of an ethane terminal in the port of Pajaritos; a fertilizer plant in the city of Camargo; the installation of a new coker at the Tula refinery; the rehabilitation of the existing coker in the refinery of Cadereyta, and the construction of a natural gas liquefaction unit in the port of Salina Cruz.

The energy projects announced by the government are not new and have been discussed before, in some cases for as long as 20 years, independent consultant Rosanety Barrios told S&P Global Platts Oct. 5.

The projects, in particular the two cokers, are proof that the president will stick to his strategy, which focuses on fossil fuels, an industry that is threated globally, Barrios said. Barrios served in Mexico’s Energy Regulatory Commission during two administrations and was instrumental in the design and implementation of a 2013 energy reform that opened Mexico’s energy sector to private investment after seven decades of monopoly.

“Investments on the refineries is needed, that is good news, but the other three projects are unfortunate,” Barrios said, adding that there are other areas that should be of more priority like power transmission or fuels storage.

LNG challenges

Barrios said the LNG project at Salina Cruz faces challenges. To make the project work, the government needs a natural gas pipeline crossing the Tehuantepec Isthmus, which will bring gas through the city of Coatzacoalcos, a considerable investment, Barrios said.

The second challenge is economic, Barrios said. The plant is intended to compete for Asian market share against other large export hubs around the world like Australia, Qatar and the US, by skipping the Panama canal. But the location of the plant means the gas Mexico will import will come from the South of Texas-Tuxpan marine pipeline, which has Henry Hub as a reference price.

“The best option to compete in price would be to use Waha,” Barrios said.

Prices of natural gas at the Waha hub in Texas are expected to average 25 cents/MMBtu below Houston Ship Channel in 2021, according to Platts Analytics.

The Mexican economy is expected to contract 9.8% in 2020, according to the latest poll of economists conducted by the country’s central bank, largely as a result of the the coronavirus pandemic.

Lopez Obrador was accompanied Oct. 5 by Carlos Slim Domit, from Grupo Carso, and Antonio del Valle, from Grupo Kaluz, two of the businessmen who have supported the president since he took office in 2018 and who have appeared by his side in public events.

The president also invited the head of financial group Mifel, backed by PE group Advent, as well as the head of Coconal, two names not commonly heard before at these high level events. Sources have told Platts the presence of Mexican companies shows the nationalistic spirit of the current administration, which has vowed to rescue former monopolies CFE and Pemex to make them engines for economic growth.

First Set of Mexico Energy Projects to be Developed:

Project: Ethane terminal

Location: Port of Pajaritos, Veracruz

Investment: $112 million

Start of Operations: 2021

Project: Fertilizer plant

Location: Camargo, Chihuahua

Investment: $51.3 million

Start of Operations: 2021

Project: New coker for refinery

Location: Tula, Hidalgo

Investment: $2.4 billion

Start of Operations: 2021

Project: Cocker rehabilitation

Location: Cadereyta, Nuevo Leon

Investment: $684 million

Start of Operations: 2021

Project: Natural gas liquefaction unit

Location: Salina Cruz, Oaxaca

Investment: $1.1 billion

Start of Operations: 2021

Total Investments: $4.625 billion

Source: Mexican government