Ia International Association for Energy Economics

We examine the main political, market and regulatoryissues concerning natural gas use in the Mexican powergeneration sector. We also study the impacts of a technologydiversification policy regarding the primary energy used togenerate electricity. For that, we make use of the LEAPsystem (Long-range Energy Alternatives Planning-SEI Bos-ton) in order to simulate two scenarios of evolution of thepower generation system in Mexico between 2000 and 2020.The first one (business-as-usual) simulates government’scurrent energy policies that consider most of the increase ininstalled capacity to be done by combined cycle plants. Thesecond one evaluates the policy of diversification where bothcoal and hydro plants are added as a complement to facilitiesusing gas. Impacts on the natural gas supply/demand balanceare then discussed. Increasing gas imports will be necessaryin the future to complement domestic supply as illustrated bysimulation exercises reported in this work. Our simulationresults also indicate that the adoption of a diversificationpolicy concerning technologies used to generate electricitycan be a way to limit foreign dependency on gas imports,especially in the long run (2010-2020). This is particularlyrelevant for the future supply/demand balance of the NorthAmerican natural gas market. It is also suggested that effortsaddressed only to the demand-side could be insufficient tocontrol gas imports. Important measures should additionallybe taken on the supply-side in order to increase domestic gasproduction, such as by relaxing PEMEX’s budgetary con-straints.