Inexpensive US natural gas in Mexico is driving manufacturing surge.
As a result of a perfect storm of rising costs of labor in the markets of its chief low-cost production competitors, a geographical advantage that equates to an edge in transportation costs and the product delivery to market, as well as the increased consumption of cheap and plentiful US natural gas in Mexico, manufacturing thrives.
Mexico’s manufacturing renaissance has created a prodigious market for US natural gas exports south of the border. According to market analysts, in the month of September, year over year figures, indicated that natural gas imports by Mexico originating in the United States rose by more than ten percent. On a daily basis, two billion cubic feet of natural gas continues to be transported through pipelines running through Texas and Arizona to users in Mexico. The volume consumers of natural gas in Mexico are the generators of electric power, and manufacturers. Although the nation possesses significant shale deposits of natural gas beneath the subsoil of land within its own territory, and has enacted Mexican energy reform that will make its extraction by both domestic and foreign sources both feasible and profitable, it is expected that for, at least the next twenty years, or so, the source of about sixty-six percent of natural gas in Mexico will be the United States. Because of this anticipated increase in demand, plans are in the works for the construction of seven new US to Mexico pipelines to accommodate the transport of this energy source.
The availability of cheap natural gas in Mexico from US sources has been a boon for manufacturers in Mexico. As a result of propitious costs for labor, and, now, the fuel required to produce electric power, automotive manufacturers in Mexico have been given a significant competitive boost vis a vis competition from other regions of the globe. Large investments have been made in the country by all major Asian OEMs, and European car makers such as Volkswagen and BMW. During the month of August 2014, Kia Motors Corp. announced that it will locate a US $1.5 billion assembly plant somewhere along the US-Mexico border. According to Kia’s corporate leadership, the new Kia plant will have the capacity to build three hundred thousand small passenger vehicles per year when it reaches full capacity.
In addition to a thriving automotive sector, low-cost natural gas in Mexico has also had a positive impact on the country’s petrochemical industry. Mexican firms such as Mexichem and Alpek are following through on plans to increase production of products such as vinyl chloride monomer (VCM) as prices of natural gas in Mexico decline. Vinyl chloride monomer is a key material used in the production of PVC pipe.
According to Richard Wheatley, a spokesman for Houston-based pipeline company, Kinder Morgan, Inc., “Mexico is an exciting market now, and will continue to be for the foreseeable future.” Most of the natural gas in Mexico that is from US sources is transited across the border through Kinder Morgan-owned pipelines.