NAFTA Renegotiation: Second Order Consequences May Have Greatest Energy Sector Impact

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Genscape and Energy Narrative Report that Effects on Mexico’s Electricity Sector will Shape Future U.S.-Mexico Energy Trade

While the upcoming NAFTA renegotiations are expected to address regional energy trade, investment, and border tariffs, a new report by Genscape and Energy Narrative suggests that second order effects that are not on the table may ultimately have a more profound impact on U.S.-Mexico energy relations.

NAFTA has boosted Mexico’s trade with the United States and supported U.S. investment in Mexico. Disrupting that could slow Mexico’s long-term economic growth and, by extension, growth in electricity consumption. “Alternatively, a new deal that streamlines NAFTA could help lift Mexico out of its current economic slowdown. In either case, it is the pace of growth in electricity consumption that drives investment in Mexico’s electricity sector and its demand for natural gas imports from the U.S.,” said Jed Bailey, Energy Narrative’s Managing Director.

The Energy Narrative-Genscape joint study, Framing the New Market Reality: Mexico’s Electricity Sector to 2035, combines Genscape’s EPSI modeling platform and extensively-researched data with Energy Narrative’s deep expertise in Mexico’s energy sector. As Sam Johnson, Genscape’s Regional Director for Power in Mexico, noted “the EPSI model’s flexibility makes it ideal to quickly analyze the potential impact of different sensitivities, such as faster or slower growth in Mexico’s electricity consumption. Small changes in economic growth have a major impact on long-term electricity consumption.” Whatever the outcome, NAFTA renegotiation is going to have important second order consequences that have an impact downstream on the energy sectors in the US and Mexico. While Genscape and Energy Narrative are of the opinion that a near-term disruption is likely, that will result in a longer-term slowdown, it is important to understand the range of possible outcomes and implications for all markets.

The study explores this range of outcomes, recognizing the inherent uncertainty. The core reference case analysis has demand for electricity growing by 60% by 2035. However, sensitivity analyses present results based on high demand growth of 73% by 2035, and low demand growth of 44% over the same period. The difference between the high and low demand cases means an additional 1.5 billion cubic feet (Bcf) per day of natural gas consumed—much of which will come from the U.S. By comparison, Mexico’s electricity sector today uses about 3 Bcf of natural gas per day.

This potential difference in natural gas demand is one of the second order implications of the NAFTA renegotiation. Natural gas production in Texas is growing rapidly, and many pipelines are being built to bring that gas to Mexico. If gas consumption for electricity generation is less than expected, much of that investment will be at risk and Texas gas producers will need to find other customers, potentially at a lower price. Framing the New Market Reality examines implications such as this one, as well as exploring the underlying causes such as NAFTA, and the presidential elections in the U.S. and Mexico.

Bailey and Johnson will be available to discuss these and other topics related to the Framing the New Market Reality: Mexico’s Electricity Sector to 2035 study. For more information on the study:

About Energy Narrative

Energy Narrative provides strategic market analysis to industry and government leaders across the Americas, bringing a fresh perspective on the trends and events that shape the energy landscape through curated news briefs, bespoke research, and consulting engagements. Energy Narrative is based in Cambridge, MA. For more information, please visit:

About Genscape
Genscape is a leading global provider of real-time data and intelligence for commodity and energy markets, driven to improve market transparency and efficiency. With a network of thousands of patented monitors, sensors, and satellites strategically deployed worldwide, Genscape is unique in its ability to collect and report proprietary market fundamentals in real-time or near real-time. Genscape delivers innovative solutions across a number of asset classes including: Oil, Power, Natural Gas and LNG, Agriculture, Petrochemical and NGLs, Maritime, and Renewables. Genscape clients often gain important insights, improve risk management, or increase operational efficiency. For more information, please visit:

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Nicola Segal
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