TY - JOUR
AU - Rivera, Rafael Garduño
AB - Abstract This article addresses the risks and uncertainties for Mexico derived from the excessive dependency on US natural gas. It will take as a reference Btu price fluctuation and the covenants contained on the based contract for sale and purchase of natural gas, particularly in the context of the behaviour displayed by market participants (including governments) during the recent winter storm energy crisis in Texas which consequently forced shortages in Mexico due to a lack of ‘available’ natural gas to produce power (electricity). The research question includes: Should Mexico exploit its vast natural gas resources although it might not be a sustainable or a cost-effective (economically–socially and environmentally) decision? (The curse of the TEX-MEX-NG). Or instead, would it be better to prepare (within the limits of its financial situation) to address the US natural gas price fluctuations, like price hedging? Or a combination of both? There is no more expensive energy than the one you do not have. —Unknown author. 1. Brief background about the dependency of Mexico on US natural gas Recently, during the second virtual meeting held with President Joe Biden, President Andrés Manuel López Obrador made the following statement: ‘We had a Mexican president who dominated the country for 34 years—very little time. His name was Porfirio Díaz’. He also said, ‘Poor Mexico—so far from God, and yet so close to the United States’. I can now say that it’s wonderful for Mexico to be close to God and not so far from the USA.1 This is exactly the kind of dependency that Mexico should rethink, at least on natural gas. The Mexican dependency on American natural gas is not a surprise, but it is now deepening to risky levels of vulnerability that permeates the Mexican economy, as proven with the recent Texas winter storm shortage that also impacted Mexico, by being cut off the supply of natural gas. A study carried out by the National Hydrocarbons Commission (NHC) in 2018,2 with the technical cooperation of the Interamerican-Development Bank, pinpoints the increasing concern about the risk that represents the growing dependency of natural gas imports3 to Mexican energy security,4 due to the greater participation of natural gas in the energy matrix, especially for electricity generation, but also in other productive sectors of industrial transformation.5 That is why the production of natural gas in Mexico should be encouraged, to reduce the geopolitical risk of the dependency on US imported natural gas. By not doing so, Mexico would be left with resources in the subsoil without the possibility of being exploited (stranded assets), with the economic consequences in terms of opportunity cost (or unrealized benefits) that this entails.6 Therefore, the NHC proposed 26 actions to develop natural gas throughout the value chain. The most relevant actions are: For upstream and midstream in the short and mid-term7: (i) Include, within a five-year bidding plan, more exploration and extraction areas that can increase the natural gas production platform; (ii) incorporate a state-owned company dedicated to the exploration and extraction of natural gas, to which non-associated natural gas allocations would be transferred, as well as the gas processing infrastructure; (iii) implement a comprehensive program to promote the production of natural gas in non-conventional gas fields; (iv) incorporate the obligation to have natural gas storage for large users, which complements the strategic reserve policy between 20 and 30 days of consumption; and (v) promote the development of underground and surface natural gas storage facilities. For downstream in the mid-term8: (i) design a security program for natural gas through the diversification of LNG imports. And as a transversal proposal in the mid-term9: (i) continue with the conversion of fuel oil and coal-fired power plants and replace them with natural gas and renewable energy combined cycle plants. Notwithstanding those useful and needed actions that could be implemented progressively, but have not, Mexico has become a major importer, both of gasoline and natural gas, as a result of an internal oil production that continues to fall, despite the financial resources that have been injected into Petróleos Mexicanos (PEMEX) and the total opening up of the industry due to the energy reforms of 2013 and 201410 dramatically halted by the current administration. Mexico imports gasoline and natural gas also in spite of the 10.02 trillion cubic feet (Tcf) of proven reserves (1 P), the 19.38 trillion cubic feet (Tcf) of proved and probable reserves (2 P), and the 30.02 trillion cubic feet (3 P) of proven and probable and possible reserves of natural gas, not to mention the conventional and unconventional prospective resources available up to 217.8 trillion cubic feet (Tcf) as of 1 January 2018.11 Data available displays the dependency on US natural gas, the vulnerability of Mexican energy security. Research carried out by Isidro Morales Moreno and Pilar Rodríguez Ibáñez12 states that during 2017, Mexico imported 63 per cent of its natural gas consumption from the USA, whereby the annual volume of exports of US natural gas via pipelines to Mexico has shown a continuous increase since 2012, when exports were 1698 Mcf/d (38.3 per cent of total exports), reaching 4227.5 Mcf/d (48.7 per cent of total exports) by 2017, displacing Canada as the main export market for US natural gas (USEIA 2018).13 This highlights that most of the natural gas exported by the USA to Mexico is via Texas, which has outperformed two other states, California and Arizona, as points of sale. Texas also went from transporting about 574.6 Mcf/d in 2008 to 3593 Mcf/d in 2017 (USEIA 2018).14 Different studies like Vásquez Cordano and Zellou,15 Laguna Martínez and others,16 and Marshall17 mention the importance of energy independence for Mexico. However, they all agree that even if it is important, Mexico has not acted on pursuing energy independence; especially due to the factors that have been mentioned in this article. Vásquez Cordano and Zellou state how countries like the USA and Canada, among others, are interested in boosting the natural gas sector due to the promises of energy independence, job creation, and lower energy prices. But how others, like Mexico, are involved in a ‘temporary moratorium’ or a ‘complete ban’ on the sector. Laguna Martínez and others conclude that shale gas exploitation will favor energy independence in Mexico. However, they agree that the lack of fresh water in some municipalities is one of the factors that has stopped its exploitation. Marshall mentioned how the new Mexican administration returned to oil as the main point on its energy reform and promised lower gas costs. But at the same time, it promised environmental protection and a ban on fracking. Thus, Marshall emphasizes analysing how the new Mexican administration will deal with energy independence, on one side, and green development, on the other, for years to come. Another factor to consider is Mexico’s socioeconomic insecurity. In the last four decades, drug cartels have controlled different regions along the border with the USA.18 Thus, if the Mexican government commences exploring a new site in the recently found deposits, the drug cartels will ask for a quota or control of the drilling site.19 The situation is worst in the Burgos Region located in the state of Tamaulipas, where the largest natural gas reserve was found. Tamaulipas is one of the states with the most drug homicides in the last decade. The state is controlled by the Gulf Cartel and will not allow any kind of profitable business without some kind of participation for the cartel.20 Therefore, the Mexican government has preferred to continue importing US natural gas than initiate new drilling. At the moment, exploring and investing in drilling these new deposits is not profitable. Instead of drilling new deposits, Mexico decided to increase access farther from the border to take advantage of the relatively inexpensive American natural gas supply.21 This will make Mexico more vulnerable to the US supply of natural gas. In other words, the way the new Mexican administration is reacting to energy security is depending more on American natural gas, knowing that the USA will continue providing all the natural gas Mexico needed (even if Mexican demand has increased considerably in the last years). As such, if the American supply decreases in the future, Mexico knows that it can start extracting natural gas from the different deposits found, especially near the Pacific Ocean and the Gulf of Mexico. As mentioned by González,22 at the same time that Mexico continues taking advantage of the US natural gas low prices, it should also develop its sector with infrastructure, technology and investment to be prepared for the big boost in the sector. All this within an environmental, legal and economic framework to transform the natural gas sector and be able to take advantage of the gas deposits found in Mexico. This will also provide necessary employment within the natural gas sector. In this particular context, the administration of López Obrador must increase domestic production of natural gas as soon as possible and take measures to store this energy to address the situation of energy vulnerability that it currently has.23 This can be done through resuming the medium- and long-term deep water natural gas production projects in Chicontepec, as well as the tenders for the nine shale gas blocks contemplated in Round 3.3.24 This is contrary to the ‘2018-2024 Nation Project’ which states very generally the increase of the exploration and production of natural gas favouring the national petrochemical industry and the generation of hydroelectric energy to reduce the use of natural gas or similar in terms of the document presented to AMEXHI by the President-elect and his energy team on 27 September 2018, excluding any natural gas production scenario for 2019–2024 under the new administration’s strategy.25 2. Brief background regarding the Texas energy crisis through similar weather events Those who do not know their history are doomed to repeat it. Texas politicians and regulators were warned after the 2011 storm that more ‘winterizing’ of power infrastructure was necessary, as shows the report by the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation (FERC/NERC),26 and yet ‘all sources underperformed expectations’, said Daniel Cohan, an associate professor of civil and environmental engineering at Rice University in Houston. ‘But far, far more than everything else combined were the shortfalls from natural gas’.27 As a consequence, the Mexican National Natural Gas Control Center issued a critical alert to market participants arguing that due to the adverse weather conditions in the southern USA as a result of an arctic air mass generating extreme cold, injections continue below schedule and this restricts the amount of gas to be transported in the Sistema de Transporte y Almacenamiento Nacional Integrado de Gas Natural (Integrated National Natural Gas Transportation and Storage System) (SISTRANGAS)28. The FERC/NERC Staff Report on the 2011 Southwest Cold Weather Event29 highlights the power and natural gas industries’ interdependency. Utilities are becoming increasingly reliant on gas-fired generation, in large part because shale production has dramatically reduced the cost of gas. Likewise, compressors used in the gas industry are more likely than in the past to be powered with electricity rather than gas. As a result, deficiencies in the supply of either electricity or natural gas affect not only consumers of not one, but both commodities.30 The report's key findings on natural gas still say that the extreme cold weather also created an unprecedented demand for gas, which further strained the ability of the local distribution companies and pipelines to maintain sufficient operating pressure. The combination of dramatically reduced supply and unprecedented high demand was the cause of most of the gas outages and shortages that occurred in the region.31 Finally, the FERC/NERC reports state that gas storage capacity in Arizona and New Mexico could have prevented many of the outages that occurred by making additional supply available during the periods of peak demand. Natural gas storage is a key component of the natural gas grid that helps maintain the reliability of gas supplies during periods of high demand. Storage can help local distribution companies maintain adequate supply during periods of heavy demand by supplementing pipeline capacity and can serve as a backup supply in case of interruptions in wellhead production.32 Supplementary gas storage capacity in the downstream market areas closer to demand centers in Arizona and New Mexico could have prevented most of the outages that occurred by making additional supply available in a timelier manner during peak demand periods.33 An interesting cause-effect correlation between the FERC/NERC report and the former energy policies issued by the administration of President Enrique Peña Nieto, in respect to natural gas storage critical relevance, is the public policy natural gas storage issued in 2018 which addresses the necessity to set strategic and operative inventories that contribute to guaranteeing natural gas supply and the way to get it done,34 the emergency plan for the security and continuity of natural gas supply, that outlines the strategy to be implemented to mitigate the economic damage related to imbalances in the supply-demand balance of natural gas in Mexico,35 and the strategic storage project issued by the National Natural Gas Control Center to put in place such public policy and carry on the first strategic storage bidding process. These policies were left in limbo when most needed, at least to be followed by the current administration,36 which perfectly exposes Mexico’s energy dependence and infrastructure deficit.37 3. Behavioral conduct displayed by market participants and governments in times of energy crises A crisis is when everybody gets the best of the worst of each of us. Energy analysts38 started to report that as a consequence of the winter storm in Texas, from 12 February to 13 February, natural gas became the most desired product. For that reason, natural gas increased in price by more than 7700 per cent, from costing three or four dollars per unit, gas was sold for up to 400 dollars, says Alan Lammey. Imports from Texas to Mexico have two main entry points: the Waha Center in northwest Texas, where natural gas went from selling for $11.69 on February 11 to $153.62 the next day, an increase of 1214 per cent, as well as the Houston Ship Channel in the northeast, where the increase was from $11.02 per unit to $180.66 the next day and to touch $400 two days later. In less than a week, the price rose 7786 per cent. On the other hand, John Hilfiker, natural gas and electricity analyst at S&P Global Platts points out that Mexico buys 30 per cent of its natural gas in the spot market, that is, in real-time. ‘They don't have contractual commitments for that longer-term supply, so it is one of the buyers that gets hit first when there's not enough supply’. This is a problem for the company, as its business model does not contemplate paying such high prices for the energy that drives its operations, the expert explains. On top of that, in a supposed effort to alleviate the energy shortage, Texas Governor Greg Abbott ordered natural gas producers not to export gas out of state and to sell it within Texas instead,39 causing (un)intended consequences, such as panic in the market, at least for Mexico, contributing even more to price rising trends. This indicates a market failure. Prices should be affordable in a cost-effectiveness market environment, but in the present case, it also represents a government failure, especially due to the panic caused by the Texas governor, when he should have contributed to market stability. Instead, as stated by Diana Coyle,40 markets and governments often fail in the same contexts and for the same reasons, which is why different societies end up with different combinations of ‘state’ and ‘market’ because there is never either a pure state-run or a pure free-market economy. 4. A ‘taking or leaving’ business relationship: a standardized-based contract for sale and purchase of natural gas As stated before, natural gas and power generation are deeply intertwined, especially because Mexico has converted fuel oil and coal-fired power plants to natural gas combined-cycle plants. The responsibility for acquiring natural gas belongs to the Federal Electricity Commission (CFE) as a State Productive Enterprise wholly owned by the Mexican State. However, due to the Energy reform of 2013 and 2014, CFE can transfer this duty to subsidiary companies (Empresas Filiales) which will be subject to private law.41 That is the case of CFEnergía SA de CV, a subsidiary company of CFE, dedicated to the commercialization and optimal supply of molecule, transportation, and reserve capacity to the public and private electricity industry, located in the national territory. Similarly, CFE International LLC, a subsidiary company of CFE, acquires continental natural gas in the USA. Both subsidiary companies aim to develop the best commercial strategies to offer competitive prices that maintain current customers and the acquisition of new ones, to guarantee national energy security and sovereignty.42 Indeed, the Business Plan of CFE 2021–202543 considers the strategic market risks associated with fuel prices, explaining that the fossil fuel market in North America is very dynamic and exposed to the laws of supply and demand daily. CFE purchases fuels through its subsidiary company CFEnergía through pre-established contracts and purchases made in the international market. The price of such purchases changes every day, so there are lags between the time fuels are purchased and the time when CFE's revenues are generated. Besides, as for natural gas purchases, the price at which the subsidiary acquires the molecule may be different from the price at which CFE’s generation companies recognize the price since the latter must be framed to the market monitor published by the National Natural Gas Control Center,44 which presents a basic risk between the indexes used in the purchase vs. the indexes used for the sale of the molecule (point of entry).45 To size the trading impact of natural gas transported by pipeline between Mexico and the USA, one must consider that the main point of entry of natural gas imports by pipeline is Texas with 86 per cent (4411 Mcf/d),46 which demonstrates the Mexican energy dependency-vulnerability or the curse of the TEX-MEX-NG. Regarding the pre-established contracts and purchases made in the international market, CFE International LLC has periodically signed several Based Contracts for Sale and Purchase of Natural Gas47 to acquire Texan natural gas. It is a standardized contract, based on the 2006 authorized form published by the North American Energy Standards Board. However, it has been a long way to put these industry standards in place. Since 1996 market participants have begun to investigate, so it is reasonable to estimate that tens of thousands of spot transactions are concluded each month,48 the possibility of developing an ‘industry standard’ contract or a ‘standard’ agreement that would allow for more efficient execution of primarily short-term transactions.49 In September of 1994, the Gas Industry Standards Board (GISB) was established as an independent and voluntary North American organization and in 1996, the GISB Base Contract for Short-Term Sale and Purchase of Natural Gas was introduced. This contract was intended to be short-term in nature.50 It was not until December of 2001 that the North American Energy Standards Board (NAESB) was formed and took the place of GISB in the market, and since then the standards have been evolving.51 Characteristics of Standardized Contracts allow for predictable and consistent execution of transactions for the purchase and sale of natural gas.52 For this article, two clauses have a direct impact against Mexico in correlation with the recent winter storm crisis: (i) Choice of Law as a default clause refers to Texas law and jurisdiction. This means that force majeure claims, particularly under Texas law, live and die by the contract's language53 and (ii) Force Majeure whereby neither party shall be liable to the other for failure to perform a Firm obligation, to the extent such failure was caused by Force Majeure, which in the light of the recent winter storm fits in one or more of the following four cases (number sequence as appeared in the form)54: (i) physical events such as acts of God whereby Texas courts tend to find that an ‘act of God’ arises exclusively from natural forces, events, or causes, or as those without ‘human intervention’, also the event shall be unforeseeable contrary to commodity price changes in which fluctuations in the oil and gas markets are foreseeable as a matter of law55; (ii) weather-related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells or pipelines; (iii) interruption and/or curtailment of Firm transportation and/or storage by Transporters; and (v) governmental actions such as the necessity for compliance with any court order, law, statute, ordinance, regulation or policy having the effect of law promulgated by a governmental authority having jurisdiction, like the Texas Governor's order to immediately stop exporting natural gas abroad,56 which was highly contentious.57 Sadly, this unfair situation but freely accepted by Mexico, not only represents the dependency-vulnerability upon the Texan natural gas supply, but it also entails the acceptance of its legal regulation as a standardized package of the natural gas industry, probably under a—taking or leaving it—dynamic, leaving little space for negotiating, exactly because of the curse of the TEX-MEX-NG (actually they feed each other dangerously) even though the Based Contract is flexible to be amended anytime.58 In other words, the dependency of Texas law, case law, and jurisdiction to solve an energy dispute represent other vulnerabilities for Mexico, which makes things even worse. 5. COVID-19 and climate change: common risks and uncertainties to energy markets One of the consequences of the high dependence on importing natural gas from the USA to Mexico was seen on 16 February 2021 in the blackouts throughout Mexico. Fortunately, this problem did not last long. However, we are already seeing what will happen if this dependence is not corrected soon. Solís59 mentions that the natural gas shortage hit Mexico’s electricity generation after Texas producers cut off supply due to the freeze on operating infrastructure. And that the Federal Electricity Commission (CFE) was forced to use dirty fuel, such as coal and fuel oil to alleviate the crisis, even importing liquefied natural gas, from other sources, to inject it into the system. The BBC60 mentions that official figures from the Mexican Ministry of Energy indicate that the country had a deficit in the energy trade balance of US $18.8 billion in 2017. This gives an idea of what Mexico has suffered from importing natural gas and not being a producer, as it had been during the 20th century. It also advises about how Mexico has suffered the consequences of the Texas gas shortage, since the situation escalated nationwide on 16 February 2021, affecting millions. Scheduled outages reached 26 of the 32 states in the country, in which there was no electricity for periods of less than an hour. According to the CFE, the price of natural gas increased 5000 per cent, from $3 USD per unit of volume to more than the US $200, and in some places of the USA, the price went up to $600 USD, indicated the state company. One of the consequences of high dependence on the USA is accepting high prices and events such as those that occurred when the Texas Governor banned the export of natural gas.61 In the north of the country, the manufacturing bastion of Mexico, there was a greater impact of these blackouts: more than a thousand companies and more than one million workers were stagnated. Claudia Ávila Connelly, General Director of the Mexican Association of Industrial Parks (AMPIP), reported that the power outages affected about 1110 companies in Nuevo León, Tamaulipas, Coahuila, Chihuahua and Sonora, which impacted about 1.2 million people. These included workers in Finsa, Prologis, Vynmsa, Fibra Mty parks, among others.62 To size the impact, the director of the subsidiary company CFEnergía, Miguel Reyes Hernández, in a virtual press conference stated: ‘The expected impact in budgetary terms is 20,000 million pesos in these four days’.63 To avoid this problem from happening again, Mexico needs to generate a hedge on natural gas prices. Barrera Rivera and Valencia Herrera64 propose that due to the size of the natural gas import market and the extent of the risk Mexico experiences, it is recommended to hedge natural gas prices and other fuel markets. The problem that exists in the natural gas market is a natural monopoly market where the government regulates prices and the quantity supply, to give preferences to the demanding groups that are more important to them. That is the reason why the prices escalated so much the last February: The Texas government gave preference to their consumers, which require natural gas to provide electricity, and increased the price to Mexico to levels higher to 700 per cent of the current price. This to eliminate Mexico’s demand during these moments of need. Mexico has never been so dependable on US natural gas before. In the last years, the demand has increased exponentially, while Mexico’s natural gas extraction has decreased significantly. The difference has only been covered by the increase in Mexican imports from the USA, especially from the Texan refineries. In the Mexican case, a lack of a regulatory system to foresee the price and volume of the required natural gas, caused that Mexico received the risk and the price increases without having a hedge to protect it. Barrera Rivera and Valencia Herrera found that the volatility of the natural gas prices during the period they analysed (2012–2017), was 6.7 times those of the peso-dollar exchange rate.65 Therefore, a price regulatory model should be used to avoid the price increases and the correct import of the natural gas needed, not only with Texas but with any other provider that Mexico has. Alcaraz and Villavazo consider that Mexico should avoid what was done in 2012–2013: a shortage of natural gas supply to the manufacturing sector to cover the electricity demand.66 This only created a reduction in the Mexican GDP growth rate. They also mention how the uncertainty of natural gas availability delayed or canceled the investment of productive projects during this period.67 Nowadays, apart from reducing the GDP growth, this system will collapse the Mexican economy and the electricity supply, since Mexico is heavily dependent on natural gas for the electric sector, as well as for the manufacturing and oil sectors. Also, this effect would spread to other sectors, such as commerce, service, and agriculture. Therefore, it is a must to have the necessary natural gas supply to cover the increasing demand and not limit Mexico's economic growth. What Barrera Rivera and Valencia Herrera recommended is for Mexico to have (one and two months lagged) multiple dynamic price hedges, taking the Henry Hub index as a reference, to reduce the price sensitivity (and volatility) in the same way that other countries, like the USA, did. Even states like California use hedging strategies to ‘improve the risk management through futures contracts or swaps’.68 They recommend two price hedging strategies: first, a futures contract, and then swaps,69 at least until Mexico reactivates its oil and gas extraction.70 They suggest these strategies even if a hedge implies a cost (and a risk) that someone must bear,71 like insurance. Yet, it is better to incur this cost to protect from a higher loss in the future. 6. Conclusions What happened in Texas was an unforeseen event, but there is no justification for not having an emergency plan action plan in place which contains a proper energy risk management handbook, a market diversification program, logistics, cost-efficiency mindset and an ad hoc price signal which properly monitors ongoing weather events and hedging. That is why the following policy suggestions should be taken into consideration to better handle these kinds of risks in the near future: Hedging the spot market72 price of natural gas at the right timing and the right price, along with the support of the Ministry of Finance taking into consideration the oil hedge experience in Wall Street. Prioritizing actions: (i) immediate action required: hedging natural gas price fluctuations. (ii) Mediate actions required: resuming storage and bidding natural past natural gas policies but harmonizing them in terms of the current Mexican president’s energy policies, privileging for midstream, storage public–private frameworks in the form of joint ventures (asociaciones en participación) and farm-outs for upstream, exploration and production of natural gas reservoirs orientated. Negotiate better legal terms and conditions for the Base Contract for Sale and Purchase of Natural Gas in a way to find a fair balance between the parties to address energy crises in the future. At the very least, a master agreement should be built in which dispositions are better crafted as follows: (i) build a master agreement for long-term purposes, (ii) change governing law to a model of law and economics international best practices, which privileges supply continuity (cover a disaster plan) (Texas marketers cannot play the role of judge and party at the same time), (iii) arbitration and mediation digital mechanisms as a collaboration platform between the parties to be immediately activated in times of crises (Texas courts cannot play the role of judge and local party at the same time), (iv) cap mechanism when natural gas prices skyrocketed, (v) substitution mechanism from natural gas to liquid natural gas, (vi) insurance coverage for damages of both parties. Improve security by attaining a diversification of imports from a portfolio of suppliers (of natural gas and electricity) to avoid the high dependence on Texas. Other possible suppliers can be: for electricity, the Western Interconnection (WEEC); and for natural gas other US states or other countries such as Venezuela, Russia or China. While the former causes a decrease in energy demand and prices (abundance scenario), the latter produces an increase in demand and prices (scarcity scenario). Both need proper risk-law and economics- management. Footnotes 1 The White House, ‘Remarks by President Biden and President López Obrador of Mexico Before Virtual Before Virtual Meeting’ (The White House, 1 March 2021) accessed 2 March 2021 2 National Hydrocarbons Commission, ‘El Sector de Gas Natural; Algunas Propuestas para el Desarrollo de la Industria Nacional’ (Government of Mexico, 2018) accessed 2 March 2021 3 ibid 23. 4 ibid 167. 5 ibid. 6 ibid 24. 7 ibid 174–7. 8 ibid 179. 9 ibid 183. 10 Tony Payan, Alfoso López de la Osa Escribano and Jesús Velasco, The Future of US-Mexico Relations: Strategic Foresight (Arte Público Press 2020), 367. 11 National Hydrocarbons Commission (n 2) 65 and 68. 12 Payan, de la Osa Escribano and Velasco (n 10) 367–97. 13 ibid 376. 14 ibid 377. 15 Arturo Vásquez Cordano and Abdel Zellou, ‘Super Cycles in Natural Gas Prices and their Impact on Latin American Energy and Environmental Policies’ (2020) 65 Resources Policy. 16 María Laguna Martínez and others, ‘Water Impact of an Optimal Natural Gas Production and Distribution System: A MILP Model and the Case-Study of Mexico’ (2020) 153 Chemical Engineering Research and Design 887. 17 Christina Marshall, ‘The Effect of Mexico’s Transition from Neoliberalism to Populism on Environmental Policy’ (BA thesis, Scripps College 2020). 18 Mark Stevenson, ‘Mexican Cartels Steal Billions from Oil Industry’ (AP News, 25 September 2014) accessed 1 April 2020 19 Robert Campbell, ‘Mexican Drug Gangsters Menace Natural Gas Drillers’ (Reuters, 15 February 2011) accessed 1 April 2020 20 Kathryn Haahr, ‘Addressing the Concerns of the Oil Industry: Security Challenges in Northeastern Mexico and Government Responses’ (Wilson Center, 2015) accessed 27 February 2021 21 Rachel Brasier and Jesse Thompson, ‘Cross-Border Pipelines Link US Natural Gas Producers, Mexican Electricity Users’ [2017] Southwest Economy 18 22 Mariana Villanueva González, ‘Shale Gas: Opportunities and Challenges between Mexico and the United States’ (2016) 56 Natural Resources Journal 313. 23 ibid 377. 24 ibid 392. 25 ibid 391. 26 Erin Douglas, Kate McGee and Jolie McCullough, ‘Texas Leaders Failed to Heed Warnings that Left the State's Power Grid Vulnerable to Winter Extremes, Experts Say’ (The Texas Tribune, 17 February 2021) accessed 7 March 2021 27 Veronica Penney, ‘How Texas’ Power Generation Failed During the Storm, in Charts’ (The New York Times, 19 February 2021) accessed 3 March 2020 28 Ministry of Energy and National Natural Gas Control Center, ‘Aviso de Alerta Crítica en el Sistema de Transporte y Almacenamiento Nacional Integrado de Gas Natural’ (National Natural Gas Control Center, 16 February 2021) accessed 7 March 2021. 29 Federal Energy Regulatory Commission and North American Electric Reliability Corporation, ‘Report on Outages and Curtailments During the Southwest Cold Weather Event of February 1-5, 2011’ (Federal Energy Regulatory Commission, August 2011) accessed 2 March 2021. 30 ibid 11. 31 ibid 213. 32 ibid. 33 ibid 213-214. 34 Ministry of Energy, ‘Política Pública en Materia de Almacenamiento de Gas Natural’ (Government of Mexico, March 2018) accessed 7 March 2021. 35 Ministry of Energy, ‘Plan de Emergencia para la Seguridad y Continuidad en el Suministro de Gas Natural’ (Government of Mexico, November 2018). accessed 10 March 2021. 36 Gerardo Flores Ramírez, ‘El Apagón, Reflejo del Desmantelamiento Productivo de México’ (El Economista, 16 February 2021) accessed 7 March 2021 37 Jon Martín Cullell, ‘El Apagón Expone la Dependencia Energética de México y su Déficit de Infraestructura’ (El País, 16 February 2021) accessed 7 March 2021. 38 Isabella Cota, ‘Cómo y Por Qué se Dispararon los Precios del Gas Natural en Texas Hasta un 7.700%’ (El País, 18 February 2021) accessed 7 March 2021. 39 Office of the Texas Governor, ‘Governor Abbott Gives Update On State Response to Severe Winter Weather, Power Outages’ (Office of the Texas Governor, 17 February 2021) accessed 7 March 2021. 40 Diane Coyle, Markets, State, and People Economics for Public Policy (Princeton University Press 2020) 17–18. 41 Ley de la Comisión Federal de Electricidad, art 59: Subsidiary companies of the CFE are those in which the CFE participates, directly or indirectly, in more than 50 per cent of its corporate capital, regardless of whether they are incorporated under Mexican or foreign legislation. Subsidiary companies will not be considered Empresas Paraestatales, will have a legal nature, and will be organized under the private law of the place of incorporation or creation. 42 CFEnergía, ‘¿Qué es CFEnergía?’ (CFEnergía, 2020) accessed 5 March 2021 43 Federal Electricity Commission, ‘Plan de Negocios 2021-2025’ (Federal Electricity Commission, 2020) accessed 5 March 2021. 44 Ministry of Energy and National Natural Gas Control Center, ‘Ministry of Energy and National Natural Gas Control Center’ (Government of Mexico, 2021) accessed 5 March 2021. 45 Federal Electricity Commission, ‘Plan de Negocios 2021-2025’ (n 43) 97. 46 ibid 97. 47 As an example, please refer to a Base Contract for Sale and Purchase of Natural Gas 2006 form. Federal Electricity Commission, ‘Base Contract for Sale and Purchase of Natural Gas’ (Government of Mexico, 2006) accessed 5 March 2021. 48 Paul Milgrom and Bob Broxson, ‘History and Development of Standardized Natural Gas Contracts’ (Comisión de Regulación de Energía y Gas, 2011) accessed 5 March 2021. 49 ibid 3. 50 ibid 5. 51 ibid 6. 52 ibid 11. 53 Derrick Carson, Monika Dziemianczuk and David Harrell, ‘Pulling the Trigger on Force Majeure: An Update from the Midstream Energy Perspective’ (JD Supra, 30 April 2020) accessed 6 March 2021. 54 Federal Electricity Commission ‘Base Contract for Sale and Purchase’ (n 47) 11 55 Locke Lord LLP, ‘Locke Lord QuickStudy: Pulling the Trigger on Force Majeure: A Texan Perspective on COVID-19 and an Oil Price War’ (Lock Lord, 20 March 2020) accessed 6 March 2021. 56 Office of the Texas Governor (n 39). 57 Carson, Dziemianczuk and Harrell (n 53). 58 (i) The Base Contract for Sale and Purchase of Natural Gas in terms of the North American Energy Standards Board (NAESB), its force majeure provision may be (and frequently is) adjusted by contracting parties. (ii) How does force majeure apply under a standard North American Energy Standards Board (‘NAESB’) contract? Assuming that the parties have not otherwise modified the contract in the Special Provisions or Trade Confirmation (they frequently do). Sidley, ‘Energy Contracts: Inoculating Against Five Misconceptions Regarding COVID-19 Force Majeure Claim’ (Sidley, 16 March 2020) accessed 6 March 2021; Carson, Dziemianczuk and Harrell (n 53). 59 Arturo Solís, ‘Para Generar Más Luz, Texas Prohíbe a Empresas Exportar Gas Natural’ (Forbes México, 17 February 2021) accessed 2 March 2021. 60 BBC News Mundo, ‘Apagones en México: La Enorme Dependencia Mexicana del Gas de EE. UU. que Dejó al Descubierto la Tormenta Invernal en Texas’ (BBC News Mundo, 18 February 2021) accessed 5 March 2021. 61 BBC News Mundo, ‘Apagones en México: La Histórica Tormenta Invernal en Texas que Ha Causado Cortes Eléctricos en la Mitad del País Latinoamericano’ (BBC News Mundo, 15 February 2021) accessed 27 February 2021. 62 El Financiero, ‘Pegarán a PIB Falta de Gas y Apagones’ (El Financiero, 18 February 2021) accessed 2 March 2021. 63 Arturo Solís ‘CFE Espera Golpe de 20,000 MDP por Desabasto de Gas Estadounidense’ (Forbes México, 15 February 2021) accessed 10 March 2021. 64 Roberto Barrera Rivera and Humberto Valencia Herrera, ‘Dynamic Hedging of Prices of Natural Gas in Mexico’ (2020) 15 Revista Mexicana de Economía y Finanzas 355. 65 ibid 371. 66 Carlo Alcaraz and Sergio Villalvazo, ‘The Effect of Natural Gas Shortages on the Mexican Economy’ (2017) 66 Energy Economics 147. 67 ibid 15. 68 ibid 357. 69 ibid 358. 70 ibid 371. 71 ibid 372. 72 Instead, it was in the spot market, where gas is bought and sold for immediate delivery, that the alarm started ringing. Naureen Malik, ‘Traders Pleaded for Cash as Texas Cold Upended Their Market’ (Bloomberg, 21 February 2021) accessed 7 March 2021. © The Author(s) 2021. Published by Oxford University Press on behalf of the AIPN. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
TI - Law and economics challenges of natural gas—the hard case of Mexico
JF - Journal of World Energy Law and Business
DO - 10.1093/jwelb/jwab017
DA - 2021-06-13
UR - https://www.deepdyve.com/lp/oxford-university-press/law-and-economics-challenges-of-natural-gas-the-hard-case-of-mexico-nIEhGva9F8
SP - 1
EP - 1
VL - Advance Article
IS -
DP - DeepDyve
ER -