EsMexico’s energy reforms in 2013 brought about a period of market liberalization that gave international investors more access to new projects, and allowed Mexican energy markets to move closer to the real costs of production and investment. As outlined in Panjiva research of November 27 the government is looking to entrench these reforms via NAFTA’s energy market chapters.
One outcome of energy reform, combined with fundamental supply and demand dynamics, has been an increase in Mexican energy imports. That’s been seen in oil already, with Mexican exports dropping and imports rising with the U.S. to reach a balance on an annual basis in September 2016. It has also resulted in an acceleration in natural gas imports.
The same trend has been seen in the electricity sector too. The overall level of trade in electricity between Mexico and its neighbors (the U.S., Guatemala and Brazil) has increased by 53.2% in the past 12 months on a year earlier, Panjiva data for imports and exports shows. Importantly though that has been dominated by Mexican imports, which climbed 102% in the three months to October 31 on a year earlier. As a consequence Mexico’s net export position is just 5.3% of total trade, down from 48.6% in 2016 overall.
The balance may swing again as new power generating capacity is installed in Mexico. However, the level of trade will likely increase given much of the $2.4 billion of investment commitments made in a recent auction was in renewable power, Bloomberg reports. Its fluctuating production will require an increase in trade to balance to provide constant power for consumers.
Source: Panjiva
The investment in renewables should also result in a significant step up in imports of solar- and wind power generating equipment. The former may become cheaper if manufacturers find the U.S. less attractive as a result of the ongoing section 201 “safeguarding” review of the industry.
The pace of installations has slowed, based on the levels of imported equipment. Mexican imports of solar panels and cells fell 31.4% in the three months to October 31 on a year earlier. Those coming from China dropped 56.3%, possibly reflecting a prioritization of exports to the U.S. to “beat the tariffs”.
Source: Panjiva
