Fundamentals underpinning Mexico’s natural gas and power sectors remain strong despite the government’s controversial energy policies, according to Sempra Infrastructure’s Tania Ortiz, president.
The subsidiary of San Diego, CA-based Sempra is developing liquefied natural gas (LNG) export projects at two sites on Mexico’s Pacific Coast, and has played a starring role in building out the country’s natural gas infrastructure.
In Mexico, “we have access to abundant U.S. gas,” Ortiz said during the CERAweek event in Houston. “The challenge in Mexico has been developing the pipeline system and we’ve made tremendous progress. In the past five years we’ve essentially doubled pipeline capacity in Mexico.”
She added, “Sempra is taking a very important role by developing liquefaction facilities…that can bring gas” from the Permian Basin “into Mexico where we can liquefy it…and take it overseas.”
Ortiz spoke on a panel at CERAWeek by S&P Global about Latin America’s power sector. Through subsidiary IEnova, Sempra Infrastructure operates some 1,600 MW of power generation capacity in Mexico, including wind, solar and combined-cycle natural gas facilities.
“In the energy sector I think we all take a very long-term view on markets,” Ortiz told the audience. “And we have to be able to navigate through different political cycles. So you need to take a step back regardless of the…current political environment in Mexico.”
Mexico’s long-term fundamentals “are very, very strong,” Ortiz continued, adding, “We’re a very large economy” based largely on exports of manufactured goods. Mexico has 13 free trade agreements with 50 countries, according to the U.S. International Trade Administration.
“There is a long-term need for clean, reliable and affordable energy in Mexico, so the long-term fundamentals are there,” Ortiz said. One indication of investors’ long-term bullishness has been the lack of mergers and acquisitions in recent years, Ortiz said. “Investors are staying put because they see the long-term value of the Mexican power market.”
Although the current administration has halted electric power supply auctions, large corporate offtakers continue to pursue bilateral power purchase agreements or PPAs, particularly with renewable generators, Ortiz said. This is because offtakers can secure long-term, dollar-denominated or dollar-indexed contracts at competitive prices. Having clean and reliable energy “is a critical component to their manufacturing chains,” she said. “Companies will not be able to continue expanding their manufacturing base in Mexico” for export “if they cannot guarantee that they are procuring power from clean sources.”
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In related news, Fitch Ratings Inc. last week announced rating upgrades to ‘BBB+’ from ‘BBB’ for IEnova.
The action “is a result of the integration of Sempra Infrastructure as a company that consolidated Mexico’s operating company and Sempra’s LNG business to advance three growth platforms – clean power, energy networks, and LNG and net-zero solutions – to capture new opportunities aligned with the global energy transition,” Sempra management said.
Fitch analysts cited that IEnova’s cash flow is stable and predictable, and supported by long-term, take-or-pay, dollar-indexed contracts with limited volume exposure.
“This credit ratings upgrade demonstrates the trust in our new platform strength,” said Ortiz. She said Sempra will “continue advancing energy infrastructure investments in North America that can create new jobs and support economic prosperity and social benefits for Mexico.”