Contents

Introduction

Mexico's historic energy reforms continue to advance, with several milestones occurring in just the last month.

On July 12, a private consortium comprised of Talos Energy, Premier Oil and Sierra Oil & Gas announced a major offshore discovery at the Zama-1 well, in the Gulf of Mexico. The consortium estimated that the find contained more than 1 billion barrels of light oil, which would place it among the world's largest discoveries in recent years.

On the same day as the consortium's announcement, the Mexican government awarded 21 of the 24 blocks up for grabs in auctions 2 and 3 of the second exploration licensing round under the energy reforms. Local firms made a strong showing in the auctions, both of which offered natural gas-rich prospects that could become important sources of fuel for Mexico's growing fleet of combined-cycle power plants.

In the power sector, the wholesale electricity market - a cornerstone of the reforms - has continued to gain steam since its launch in 2016. The energy ministry (Sener) and regulator CRE have been fine-tuning the new regulations and publishing market guidelines and manuals to help participants get familiar with the new rules of the game.

This year, Mexico's independent system operator, Cenace, met with the North American Reliability Corporation (NERC), a non-profit entity which oversees and enforces standards for all of the major interconnected electrical systems in the US and Canada, to work on strengthening collaboration and incorporating NERC reliability norms into Mexican regulations.

At a July meeting in Mexico City, US Energy Secretary Rick Perry and his Mexican counterpart, Pedro Joaquín Coldwell, agreed to deepen Mexico-US energy ties, including the expansion of the electrical infrastructure that interconnects the two countries. The encounter also served to reinforce earlier statements this year by Mexican officials, who have sought to dispel any concerns that the constant cloud of uncertainty around the Trump administration in the US - Mexico's largest trading partner - has stymied investor interest in the energy sector.

Indeed, the energy reforms continue to attract foreign investors, from the US, Europe and elsewhere, who are eager to get a foot in the door as the Mexican electricity sector transitions into a fully open and competitive market.

This report will provide an overview of the Mexican electricity sector, examining the challenges and opportunities that have arisen as Latin America's second-largest power market undergoes a historic transformation.

Figure: Demand Growth
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