170. ELECTRICITY IN MEXICO

The U.S. is the Saudi Arabia of coal, and this is one of the main reasons the U.S. will retain its strength going forward. In terms of fossil fuel, it is clear the U.S. will be the last man standing, even after both peak oil (2010-2020?) and peak gas (2030, Lahererre(pdf)).

However, it is too simple to just point at the U.S. coal reserve, and say "problem solved". Lots of people are putting dibs on U.S. coal -- too many people if you ask me. For example, it's very clear that the U.S. military will stake a claim. And of course there is the existing claim on U.S. coal by the electric power industry (50% of U.S. electricity is generated by burning coal). The electric car advocates are staking a claim on coal, by promoting plug-ins. The synthetic liquids advocates also say we'll turn to coal to fuel our vehicles. People in the U.S. switching from gas/oil to electric heating are also (more likely than not) turning to coal.

In the U.S., there are really only two near-term options for large-scale power generation: coal and nuclear. Natural gas is declining, and some relief may be available from LNG, but LNG will not be fueling the U.S. power grid any time soon. Neither will renewables. The path of least resistance is clearly to burn more coal, and that's what will be powering the electric vehicles of the near-term future.

But that's not the end of it. Mexico too will put demands on U.S. coal. Check this out from the latest DOE Country Analysis Brief on Mexico:

In 2002, Mexico ’s installed electric power generating capacity was 42.3 gigawatts. In the same year, the country generated an estimated 198.6 billion kilowatthours (Bkwh) of electricity, of which thermal (oil, natural gas, and coal) electricity generation account for 81%. According to Sener, total power generating capacity as of May 2004 was 50.7 gigawatts. Oil-fired power plants accounted for the largest share of Mexico 's thermal electricity generation, but many of these plants are being converted to natural gas. According to Sener, fuel oil accounted for 49.4% of thermal feedstock in 2002. Currently, only about 6% of electrical generating capacity is coal-fired. By 2012, natural gas is forecast to account for 63% of Mexico 's power output while fuel oil's share is expected to drop to 24.2%. In 2002, hydropower accounted for 12% of Mexico 's total electricity generation, followed by nuclear with 4.5% and geothermal with 2.5%. Mexico also has one wind-power installation in Oaxaca , which generated 0.005% of the country's total electricity generation. There are plans to increase Mexico 's wind capacity, which has not been added to since 1999.

Notice that oil accounted for 40% of Mexico's power generation in 2002. In the 1990s, Mexico had the highest percentage of oil-fired generation in the OECD (59% of electricity generated from oil). This is in a country where oil is currently peaking (or will do so shortly). Notice also that NG-fired capacity is increasing, in a continent where NG is also in decline.

So it's not really a question of whether the lights can be kept on in the U.S. That's not in doubt because oil only accounts for about 3% of U.S. power generation. The question is how to keep the lights on Mexico. (We should also note in passing that the electric grid of northern Mexico is connected to the grid of the southwestern U.S.)

Henry Groppe has mentioned the idea of freeing up oil for vehicles by switching oil-fired electricity nations like Mexico to another fuel source:

On the supply side, he believes oil is pretty much at peak and will flatten out and then start declining. But what caught my attention was his opinion on the demand side. He believes that something like 20mbpd of the current 84mbpd of oil demand is going for heat and power generation primarily in developing countries. He thinks that with oil in the $50-$60 range, all of this will get converted to coal or natural gas, and that, along with vehicle fuel efficiency, will be the main initial responses to peaking, and will keep us out of serious economic pain for a decade or so.

I'm skeptical about the idea of converting Mexico to natural gas because North American NG is peaking. We're getting too many claims on a shrinking North American NG pie. I don't see massive LNG imports being a solution for Mexico either. It's hard enough trying to switch the U.S. to LNG, let alone switch the U.S. and Mexico at the same time. (Then again, Mexico may be the place to locate LNG ports due to U.S. NIMBYism.) At any rate, Mexico and the U.S. will be joined at the hip on the NG front, no matter how events pan out.

Switching the Mexican grid to Mexican coal isn't an option. If Mexico generated as much electricity from coal as the U.S., their reserves would run out in a little over a year. So that leaves two near-term options: U.S. coal and nuclear. I take it nuclear is out because: a) nuclear accounted for only 4.5% of Mexican power generation in 2002, and b) the U.S. may not be comfortable with a massively nuclear Mexico.

So that leaves coal, and now we've got another nation making a claim on U.S. coal, and as a member of NAFTA they certainly have a right to it. We might also wonder whether coal will be the solution for Mexican motoring as well. Will Mexicans be driving electric cars fueled by U.S. coal? Or high-efficiency hybrids fueled by U.S. coal? Or will they just keep it basic, and try to keep the lights on?

And Mexico isn't alone. According to Oil & Gas Journal, lots of countries have no oil, gas or coal: Costa Rica, El Salvador, Guatemala, Haiti, Hondurus, Jamaica, Panama, Paraguay, Puerto Rico, Uruguay etc. Are they all going to turn to massive capital projects like LNG and nuclear? Or are they just going to give up electricity?

It's obvious what needs to give in this equation. Electricity is necessary to live a first-world standard of living, cars are not. Cars are a low priority compared to maintaining the status quo in electric power.

-- by JD