While some uncertainties remain, we expect demand growth to continue as Mexican imports increase and gas pipelines expand, CFE and Pemex unbundle value chain positions, and renewables gain market share through government incentives.
Here are some specific reasons to consider investing today:
1. Renewables are taking off — at staggeringly low prices.
As CFE begins the unbundling process and market design is well into the implementation phase, the big story is renewables, as solar and wind dominated the first 2 long-term power auctions organized post-reform at incredibly low prices (US$47/MWh in March and US$33/MWh in September), which seem to be the new international 'norm'.
2. Solar, wind and gas generation will require approximately US$100B in investment to achieve clean energy targets.
Achieving 2035 clean energy targets would require approximately 50 GW of new solar and wind capacity, and gas will still play a key role, with nearly 30 GW of new capacity, requiring a total of about US$100 billion in investment over the next 20 years.
3. Natural gas infrastructure has increased significantly.
In the gas sector, Mexico's domestic natural gas production has declined steadily since 2010's peak production, driving an unprecedented US$15 billion CFE-led gas infrastructure build-out accessing cheaper US natural gas. A new state entity, CENAGAS, is poised to take over the old Pemex system.
4. Mexico needs a competitive investment market throughout its energy value chain.
Monumental gas and power integration challenges lay ahead, requiring considerable value chain investment as Mexico plays 'catch up' on the gas sector reform front.
5. Merger and acquisition activity will strong see near-term growth.
M&A activity in the G&P sector will likely continue to increase in the next 3 to 5 years in lockstep with the current investment boom and reform progress.