Energy Needs in Mexico - Research Paper Example

Energy Needs in Mexico 0 Introduction Sometimes it is quite difficult to distinguish between energy and power. In fact, it is quite true that many people do not even understand the difference between the two. To begin with, science defines energy as a property of matter, which people can convert into radiation, work or heat. In other words, energy is the capability of doing work, spawning heat, and discharging luminosity or emission. On the other hand, power is the energy spent over a given period, say, per unit time. The two are interrelated and one cannot do minus the other. So far, there are over six elementary sources of energy, which include nuclear, thermal and electromagnetic energy. Other forms of energy include electricity, mechanical and chemical energies. Different countries use different forms of energy or a combination of many forms of energy. In Mexico, the government of Mexico struggles to meet the energy needs of the country by using a combination of different forms of energy. Notably, coal and fossil fuels are the dominant sources of energy in Mexico. Perhaps due to their abundance within and without Mexico, fossil fuels are the most common source of energy not only in Mexico, but also in other countries. However, with the warning of fossil fuels getting scarce and their adverse effects of combustion, various countries just like Mexico are busy adopting new forms of energy (Buen & Isabel, 2006, pp. 1-3). The Mexican constitution gives the state the mandate to generate, transmit, and distribute different forms of energy to the citizenry. The same constitution also empowers the state to exploit all available hydrocarbons in order to address the energy needs of the public. Although Mexico uses different forms of energy to address its energy needs, various challenges still face the energy sector in Mexico. However, there is no doubt that the energy sector in Mexico plays a significant role in developing the national economy. This sector adds three percent points to the Gross National Product of the Mexico’s economy, which is an equivalent of thirty-seven percent of the total revenue collected, and eight percent of all exports. The main source of energy in Mexico is electricity. The electricity sector in Mexico relies heavily on fundamental sources such as thermal and hydropower generation. For instance, the generation of electricity in Mexico depends on 75 percent of thermal sources, 19 percent from water generation (hydropower). Other sources accounting 2 percent include biomass, solar and wind. Recently, the government embarked on plan to increase its energy figures by 14.8 GW by 2015 using other sources of energy such as renewable sources. This research paper addresses the energy needs in Mexico, the challenges facing its energy sector, and the implication on the economy (Auer, 2001, pp. 1-7). 1.1 Statement of the problem Although there are abundance reserves of both natural gas and petroleum in Mexico, the problem of energy insufficiency persists in a country that is trying so hard to set its path towards positive economic growth figures. The ever-growing economic demands in the country are slowly but surely outpacing the ability of Mexico to produce additional energy. To make matters worse, the poor infrastructure in the exploitation of these two fundamental sources of energy has made the country loose millions of dollars due to the flaring up of natural gas. Additionally, the government has been on the receiving end for not investing enough in the energy sector thus, affecting the exploration and production of these basic sources of energy. Inadequate investment from the private sector is also another impediment facing the energy sector in Mexico. The lack of storage facilities for refined oil is also another challenge facing Mexico, as this forces the government and other energy sector players to import at least 25 percent of gasoline. Major infrastructure projects happening in the energy sector in Mexico have almost come to a standstill due to budgetary constraints. For instance, the laying of transmission lines and the extension of gas pipelines to other town of the county is not yet possible due to budgetary constraints. There is no doubt that if the government does not address these challenges, then Mexico will face massive blackouts (Carreon, Vicente & Rosellon, 2003, pp. 1-3). Ironically, Mexico has been one of those countries that import natural gas from United States of America and other countries, yet it has discovered natural gas wells in the south. Poor infrastructure and lack of storage facilities continues to hinder gas exploration and production in Mexico. In order to meet the energy needs, the governments of Mexico, Canada and United States have embarked on a platform of integrating their energy markets in order to meet the energy demands of their countries. So far, this concept continues to gain popularity across North America. Unites states and Canada have laid several oils and gas transmission pipes and power cables linking their countries. With adequate funding, Mexico can do the same. In order to help Mexico address its energy needs, Unites States has extended pipelines and transmission lines to the Mexican border hoping that she will use that opportunity to develop her energy sector. The entry of private companies into the energy sector will help Mexico achieve its energy needs by building several power plants especially on the northern side of Mexico. As compared to very many other countries such as Unites States, Mexico does not have ambiguous environmental regulations, and this makes it easier to construct power plants that will be key in tackling the energy needs of the country. The continued integration with the neighboring countries, United States and Canada, is a step towards addressing any future shortfalls of electricity in Mexico, thus satisfying its energy needs. Although Mexico is historically one of the biggest energy export player, its home consumption is increasing at a fast rate. Thus, in order to satisfy the energy needs, this and many other challenges need quick attention (Lajous, 2005, pp. 38-47). 1.2 Significance of the study In the wake up of the increasing energy consumption rates that now stands at 3 percent, the government of Mexico faces the challenge of satisfying the energy needs of the public. In many state-owned oil firms, the prices of oil are on the rise each time. This study will help in unraveling the mystery of skyrocketing oil prices and propose the modalities of solving looming issues affecting the energy sector in Mexico. The study will also address the challenges facing the country’s energy sector from regulation to environmental policies. Poor infrastructure and inadequate budgetary allocation are impediments towards satisfying the energy needs in Mexico. Therefore, the study will highlight the reforms needed to replenish the sector including allowing foreign companies to perform joint ventures in a move aimed to expand energy infrastructure facilities. The country needs over US$50 billion to expand the energy sector over the next 10 years. This study will therefore provide a benchmark of future researches related to energy needs in Mexico. The study will also highlight the role of government in solving problems facing the energy sector right from drafting of policy regulations to privatization issues. The study will also address other forms of energy other than crude oil and electricity that can help Mexico satisfy its energy needs. Findings will provide empirical information that will help policy makers to institute appropriate interventions including strict supervision of energy sector programmes, which are instrumental in satisfying energy needs in Mexico. Findings of the study will also help open up gaps that will create ground for researchers interested in the topic, thus contributing to the search for new knowledge (Navarro, Queiroz & Finon, 2004, pp. 1-7). 1.3 Research hypotheses, questions, objectives, or purposes Hypotheses—the issue of satisfying the energy needs of a country does not only revolve around energy supply or simply a collection of many forms of energy, but rather the adequate policies available to address any arising problems. Another hypothesis is that the exhaustion of energy resources leads to energy crises and that in a world that is becoming increasingly hostile, geopolitical and location of oil springs are causing worries in most energy sectors in the world. The paper also hypothesizes that sound institutional framework regulations, development of infrastructure, adequate budgetary allocation, efficient distribution of energy, controlled consumption rates, environmental protection and technological advancements are some of the solutions that will help satisfy energy needs not only in Mexico, but also in other countries (Bazán & Elizalde, 2007, pp. 6-8). Purpose—the purpose of this study is to explore the need for unremitting wide-ranging institutional, organizational and regulatory modifications within the energy sector in Mexico in order to satisfy the energy needs. Although Mexico is among top oil producing companies, lack of infrastructure and adequate funding are threatening the sector and according to experts, the county’s energy sector might crumble in future. Thus, it is paramount too identify the problems facing the energy sector and propose some of the solutions in order to stop the stop the looming crisis. Purposes—the purpose of the study is to explore and examine the energy needs in Mexico, and to find out the role of different stakeholders and government in ensuring the satisfaction of these needs. Research questions a) What are the various sources of energy available in Mexico? b) What is the role of the government in ensuring the satisfaction of energy needs in Mexico? c) What are some of the regulatory measures and policies that will ensure satisfaction of energy needs in Mexico? 2.0 Review of the literature The literature review of this study highlight different forms of energy available in Mexico for the public. There are very many forms of energy available today and many countries such as France and Italy are now switching to green energy for the purposes of protecting the environment. However, in Mexico, petroleum and gas products are in plenty. This has always made Mexico an energy exporter. However, owing to the diminishing oil products, and the increased consumption rates, Mexico is back to the drawing board on how to balance deal with the looming energy problems. Additionally, poor infrastructure and inadequate funding are also impediments towards satisfying energy needs in Mexico. This chapter contains a review of the related literature in this study. Literature reviewed includes the background information on the energy sources, institutional and organizational framework. The review literature also highlights the role of government in enacting policies that will ensure satisfaction of energy needs in Mexico (Bazán & Elizalde, 2007, pp. 1-4). 2.1 Review of previous research and opinion Various research findings show that the government of Mexico is the dominant player in the energy sector. In order to ensure the county benefits economically, the state instituted the Petroleos Mexicanos (PEMEX) to watch oil and gas exploration in Mexico on behalf of the government. Additionally, the state also developed another commission, Comisión Federal de Electricidad (CFE), which is responsible for electricity utilities in Mexico. Just like in other countries, energy means the same thing. In Mexico for example, energy implies the production of electricity and other sources of energy like geothermal, solar and other renewable energy sources. However, this does not end here. After the production of electricity, the companies responsible will then make it available for consumption to the public. In case the produced energy is not sufficient for public consumption, the government of Mexico through its agencies will then arrange to import energy. Numerous policies enable the management of the energy sector in Mexico. Additionally, the terrain of the politics of Mexico is also paramount in describing the energy sector in Mexico. Amid the policy and political challenges facing the energy sector in Mexico, the country is able to meet the demands of the public, at least for now. The realignment in the energy sector has seen Mexico produce 234 TWh of power in 2008 alone. This is a cumulative of all sources of energy available in Mexico. Out of these, the chief source of power in Mexico is from thermal plants, which stands at 86 TWh. The other sources that contributed to this figures include hydropower generation at 39 TWh, another 10 TWh from nuclear power plants, and finally, coal mining at 18 TWh. Other sources of energy available in Mexico include geothermal power and wind power that contributes 7 TWh and 255 GWh respectively to the national grid. There is no doubt that Mexico is among the top countries that produce oil in the world, and that it exports some of its oil (Auer, 2001, pp. 46-61). . The trouble in the energy sector started in 1930s when the then President, Lazaro Cardenas, expelled foreign-based companies from mining the oil reserves. He gave the state the responsibility to oversee the production, consumption and import of oil to a state agency, PEMEX. From this time, PEMEX seized control of major oil reserves in Mexico, which include Cantarell and Chicontepec. The production of oil has been smooth since 1930s. Nonetheless, there are times when oil production figures went down as well. For instance, in 2008, the production of 234 TWh was actually a 9.2 percent decline of the previous year. However, the good news is that that particular year, the production of natural gas increased significantly and this helped to prevent any looming energy crisis. Still in the following year, 2009, the IEA listed Mexico as one of the beigest oil producers in the globe. Other countries that produce oil include Canada, Iran, Iraq, Russia, and United Arab Emirates. Additionally, Venezuela, United States of America, Saudi Arabia, Kuwait and china are also among the top oil producers in the world (Carreon, Vicente & Rosellon, 2003, pp. 12-23). As noted above, most of the energy in Mexico comes from geothermal power plants. According to IEA, Mexico ranks position three in the world, as countries that produce energy from geothermal plants. The geothermal power plants have an installed capacity of 960 MW and the continued infrastructure development will see these figures rise up. It is also paramount to note that Mexico has one of the biggest geothermal power stations as compared to any other country in the world. Although the figures indicate that Mexico produces huge amounts of oil and other energy sources, experts are of the view that the future is not good unless the government makes quick interventions. This is because the oil reserves are becoming scarce as days go by. For instance, in 1995, Mexico produced 50.b billion barrels of oil. Eight years down the line, precisely 2003, PREMEX produced only 12.6 billion barrels. Clearly, this was a huge decline at a time when the figures in other oil-producing countries were on the rise. According to PREMEX, Mexico currently produces 3.4 million barrels of oil every day, figures which are not pleasant enough. Although PREMEX has blamed this on the declining oil levels, exorbitant reserve levels are also contributing to the looming problems. Moreover, in the last 20 years, the government and in particular PREMEX has shied away from investing resources in the energy sector. In fact, lack of funding has been an issue, which brings serious setbacks in the energy sector, and continues to threaten the production of not oil, but also exploitation of other sources of energy in Mexico (Navarro, Queiroz & Finon, 2004, pp. 8-17). 2.1.1 Natural gas Mexico is one of the biggest producers of natural gas. With 30.1 trillion cubic feet, Mexico ranks position twenty-one in the globe in terms of natural gas production. Studies show that although Mexico produces natural gas, it has not done enough to exploit if for full commercial purposes. One of the biggest obstacles in achieving this is inadequate investment on infrastructure such as pipelines to transport the gas from exploration centers. Infrastructural development will improve the figures and perhaps help in solving energy crises and satisfy the needs of the people. 2.1.2 Coal Although Mexico exploits coal, it only accounts 4 percentage points of the energy consumed. Some of the Mexico’s coal reservoirs produce poor-quality coals, which nobody wants in the market. The government needs to invest heavily in this sector in order to enable the production of clean coal, which will enable the country evade the future looming energy crises. 2.1.3 Hydroelectric Power Although Mexico does not have major rivers, historically, its principal source of energy is electricity generated from hydropower. However, the outdated hydropower plants do not produce enough energy that can satisfy the needs of the public. Additionally, the seasonal rivers add yet another challenge to the energy sector that is more dependent on electricity. With only 10,000 MW of power, Mexico has much to so in order to address its energy needs (National Institute of Statistics Geography and informatics, 2005, p. 303). 2.1.4 Other forms Other forms of energy applicable in Mexico include wind turbines, which produce green energy. It is important to note that wind energy offers a better alternative to fossil fuels as it is not only cheaper, but also preserves the environment. Coal is also another form of energy that Mexicans widely use, mainly for heating purposes. Comparing coal to charcoal, coal is much superior, as it is hotter and cleaner. Nonetheless, although coal can generate electricity, it pollutes the environment. Recently, there have been an increasing number of deaths arising from coal mining when mines collapse. In Mexico, natural gas is also dominant. This form of energy is also able to generate electricity. 2.2 Interpretive summary of the current state of knowledge Although Mexico has many sources of energy, poor infrastructure, inadequate funding, poor legislations and lack of reforms continue to hamper the energy sector. The government has not done enough to lay down infrastructure that will ensure quality exploitation and commercialization of energy products. The current state of hydropower generation is wanting and needs an excess of $34 billion for infrastructure. The country also needs to invest $48 billion, $20 billion, and $18 billion in exploration of oil and gas, natural gas and refineries respectively. Although the government of Mexico has not succeeded in instituting, reforms that will allow free market reforms in the industry, the centerpiece of reforms lies in the privatization of these two government organizations, PEMEX and CFE. However, this will not be an easy task, as it requires the changing of the constitution by a two-thirds majority vote in Congress. Other than this, the government has opted for other modalities that ensure satisfaction of energy needs in Mexico. These include the capital financing of various project such as infrastructure improvements, hydrocarbons drilling, and laying of transmission lines (National Institute of Statistics Geography and informatics, 2005, pp. 300-303). 3.0 Research findings Based on the questions of research, this part analyses the research findings of the study. The main research findings include the forms of energy available in Mexico, and if they satisfy to the needs of the public. This part also discusses government regulation and the role of both government and private companies in ensuring the satisfaction of energy needs (Buen & Isabel, 2006, pp. 12-23). 3.1 Overview of statistical procedures Although there are variety statistical procedures, the type of data collected and questions asked will inform the statistical analysis of this study. The research study will perform simple correlation between dependent and independent variable. For instance, whether the different forms of energy satisfy energy needs in Mexico. The main statistical procedures include tables and pie charts showing representations in terms of figures and percentages. 3.2 Description of results for each hypothesis, question, objective, or purpose 3.2.1 Forms of energy The pie chart below represents the different forms of energy that are available in Mexico. Source: IEA 3.2.2 Demand There has been an increasing demand of energy in Mexico owing to the ever-expanding economy. The emerging industries and the expansion of the informal sector that mainly relies heavily on energy are threatening the energy sector. Undoubtedly, these sector needs quick attention from all stakeholders, and especially from the government due to the role it plays. In consequence, in order to address the energy needs, the following consumption data is useful. In 2008, residential consumption accounted 26 percent, while industrial consumption claimed 59 percent of the total power generated. Other consumption figures include seven, four, and four percentages for commercial, agriculture and services respectively. Source: IEA 3.2.3 Crude oil production and consumption The table below shows the productions and consumption rates of crude oil in Mexico from 2000 to 2010. The figure indicates that the consumption of energy in Mexico is on the rise and soon if the figure outdoes those of production, then crisis will set in. Petroleum Production and Consumption in Mexico, 1990-2000 (in thousand b/d) 2000 2001 2002 2003 2004 2004 2006 2007 2008 2009 2010 Production (total) 3,009 3,165 3,151 3,160 3,174 3,092 3,306 3,439 3,523 3,373 3,478 Production (Crude Oil only) 2,553 2,680 2,673 2,685 2,618 2,855 3,023 3,070 3,089 2,906 3,012 Consumption 1,679 1,695 1,723 1,710 1,795 1,724 1,763 1,855 1,948 2,000 1,992 Source: IEA 3.2.4 Hydropower generation The following table shows hydropower generation in Mexico. In a country heavily reliant on electricity, the government needs to invest more in electricity generation in order to meet the demands of the consumers. Otherwise, with the current figures, the county runs the risk of running into a blackout any time in the future. Modality Total Capacity (Mega Watts, MW) Total national capacity (%) Autogeneration 6,102 6 Cogeneration 3,255 4.5 Independent Power Production (IPP) 13,250 19.5 Small generation 3 0 Source: IEA 3.3 Supplemental analysis Lack of privatization of the electricity sector has made the government to remain the only players in this particular sector and this has affected service delivery hence energy needs. In order to replenish the energy sector, the government of Mexico must enact sound reforms and pump more money in the exploration of oil reserves and generation of other sources of energy. It should consider joint ventures with other countries, which will see the opening of other oil reserves across Mexico. Platform studies will be instrumental in meeting the energy needs of the country, even as infrastructural development takes shape. Activity Private Participation (%) Generation 25 Transmission 0 Distribution 0 4.0 Discussion Lack of sound reforms and institutional realignment are the major reasons that make the Mexican energy sector perform poorly. Even with the available resources, the stakeholders have not done much to help the country achieve its targets and satisfy energy needs. With the growing economy that relies heavily on energy, institutional and organizational reforms are necessary. 4.1 Interpretation of each result Poor infrastructure development and inadequate funding of oil and gas exploitation in Mexico is threatening the energy sector. Additionally the closed market is also injurious to the sector rather than the open market one. Coal production has also hit a snag because the mines are becoming ashy. This has largely affected the energy sector largely. The generation of electricity is also another predicament facing the energy sector, as the government has not put enough money to upgrade the ancient hydropower plants and add transmission lines. The consumption of energy continues to increase due to the growing and emerging economic activities. With such trends, if the government drags feet in enacting reforms, then Mexico might face a black out any time. 4.2 Limitations of the study The study limited its findings the role of various forms of energy in satisfying energy needs in Mexico. Implications and generalizations of the study findings are subject to change if stakeholders change the current policies. The study is also limited to the role of government in instituting energy sector reforms without mentioning the role of other stakeholders. 4.3 Implications for future research This research study forms the basis of future research on energy needs in Mexico. Having highlighted the various forms of energy available in Mexico, both renewable and nonrenewable, and discussed the problems facing the industry, future research will examine and provide solutions to the looming problems in the energy sector. The future researches will dwell on building platforms that will enable further oil explorations within the Gulf of Mexico. References Auer, M. (2001). “Energy and environmental politics in post-corporatist Mexico”. Policy Studies journal, 29 (3), 1-7. Bazán, G., and Elizalde, A. (2007). Strategies of Diversification in Regulated Energy Markets: The Natural Gas and Electric Power Industries in Mexico. Rome, Italy: Proceedings of the 20th World Energy Congress. Buen, R., & Isabel, B. (2006). Energy and Sustainable Development in México. Retrieved from http://www.helio-international.org/reports/pdfs/Mexico-EN.pdf. Carreon, V., Vicente, A., & Rosellon, J. (2003). Mexican electricity Sector: economic, legal and political issues. Program on Energy and Sustainable Development Working Paper No. 5. Retrieved from IEA. (2011). Key World Energy Statistics. New York: IEA Lajous, A. (2005). Mexico: Oil Policy Issues. Kennedy School of Gooemmemf. Cambridge: Harvard University. National Institute of Statistics Geography and informatics, (INEGI). (2005). El Sector Energético on México. Mexico City, INEGI: Serie de Estadisticas Sectoriales. Navarro, A., Queiroz, H., & Finon, D. (2004). Energy, institutional reforms and development in Latin America — introduction. OGEL (Oil, Gas, Energy Law), 2 (3), 1-12. Read More