Low North American natural gas prices is benefiting both the U.S. and Mexican economies by fueling factory production in Mexico. According to Slate Magazine, U.S. exports of cheap natural gas to Mexico is generating a manufacturing boom in the country. As Mexican imports of U.S. natural gas reached record highs last year, the country was able to reduce manufacturing costs while more U.S. companies began expanding to Mexico. Both the U.S. and Mexico are set to profit from increasing economic relations, with cheap natural gas imports from the U.S. at the center of the ongoing Mexican manufacturing boom.
Cheap U.S. gas fuels Mexican industry
The Financial Times reported Mexican energy costs continue to stay low as the country increases its manufacturing output. U.S. natural gas exports are seen as a key factor for Mexico's economic growth and competitive edge over China as an offshoring solution. According to the Financial Times, importing cheap gas from the U.S. is currently assisting Mexican manufacturers in keeping their costs down compared to other global industry centers. Due to Mexico's close proximity to the U.S., it is easier for the two countries to import each other's goods and services. The U.S. has seen a recent increase in natural gas production, with Mexico being the chief buyer of the resource.
The news source reported recent forecasts estimate China's manufacturing expenses will be 95 percent of U.S. levels by 2015, with natural gas accounting for 4 percent of China's total production costs. In comparison, Mexico will be the more affordable option for U.S. companies at 89 percent of total production costs, with natural gas accounting for 1 percent. According to the Financial Times, 2012 Mexican imports of U.S. natural gas rose by 19 percent, totaling nearly 20 percent of the country's demand for the energy resource.
According to Energy and Capital, an energy industry resource, Mexico has a short supply of natural gas, making U.S. imports vital to the Mexican economy. In fact, Mexico has increased its demand for U.S. natural gas since 2008 to the point where a new pipeline is being considered. The Financial Times reported Mexico estimates to double its need for U.S. natural gas once one pipeline, the Ramones project, is competed in the next few years. At least six pipelines to the country are currently in the works.
With U.S. gas exports to Mexico set to increase, more U.S. companies are boosting their investment in the Mexican manufacturing market. As natural gas improves the U.S. and Mexican economies, Mexico will surpass China as the dominant offshoring option for U.S. industrial companies.