Natural Gas Supply and Production of Ammonia and Urea in Mexico: Structural Setbacks and Policy Implications

The production activities of several important industrial sectors in Mexico depend on an inadequate supply of natural gas. After decades of underinvestment, the country’s natural gas pipeline network faces severe limitations in capacity and geographical coverage, leading to limitations in meeting domestic demand. To correct this, the government has launched an aggressive program to upgrade natural gas transport capabilities. However, Mexico is likely to see stronger consumer demand in the years to come. The country possesses important natural gas reserves that it does not have the capital to exploit. The recent energy reform in Mexico aims to correct this shortcoming by attracting foreign investment in the natural gas sector. The government’s recent natural gas-related infrastructure program and energy reform are designed in part to help decrease the country’s reliance on imports of fertilizers (urea) and basic food staples, which stand at approximately 70 percent and 43 percent of domestic consumption, respectively. Increasing natural gas production and infrastructure will contribute to gains in ammonia and nitrogen fertilizer production,[1] which would in turn have a positive impact on Mexico’s agroindustry. This paper analyzes how structural issues related to natural gas supply contributed to greater dependency on fertilizer imports. Furthermore, it demonstrates that regulatory changes can incentivize policies to increase production of ammonia and urea, which would reduce Mexico’s dependency on imports of both nitrogen fertilizers and staple foods, such as corn, wheat, and other grains