In Energy
Arthur Deakin

Arthur Deakin
Director of Energy Practice

Given Mexico’s regulatory framework, biomethane, renewable diesel and Sustainable Aviation Fuel (SAF) have seen limited adoption among Mexican producers and consumers. Despite praising their environmental benefits, which can range from a 50 to 90% reduction in lifecycle carbon emissions, a leading Mexican airline stated that the only time they used SAF was to move their aircraft from the manufacturing site in the U.S. to Mexico. Cost, they mentioned, has been the main impediment. SAF is still 2-3x more expensive than regular jet fuel.

A large part of reducing this cost will come from economies of scale and technological improvements. However, when talking about clean or sustainable fuels, feedstocks account for 60-80% of the total cost. This includes mostly vegetable oils, such as soybean oil, canola/rapeseed oil, and corn oil, but also used cooking oil (UCO) and animal fats. Excluding soybean oil, which Mexico has to import from the U.S. because of a domestic deficit, the country has an abundant supply of the raw materials needed for the production of these fuels. Local companies that are collecting UCO, or rendering animal fats, are well-positioned to capitalize on this growing segment within the energy sector.

The green premium, which is the difference between the cost of conventional fuels (i.e., fuels made from extracting and refining oil from the earth’s crust) versus sustainable fuels (made out of biomass or waste), still needs to be lowered to increase adoption in Mexico. For example, the price of natural gas in Mexico has been hovering around $2.6 MMBtu,1 which is roughly 2 to 5x cheaper than the price of biomethane in Mexico and the U.S. However, when you look at the difference in price between renewable diesel and fossil diesel in California, the green premium is negligible. Renewable diesel was only 6 cents more expensive than fossil diesel in Q3 2023. That is why renewable diesel or biodiesel accounts for 59% of total diesel consumed in California, while the rest of the United States averages 6%. A recent study by UC Davis predicts that there is a 50% chance that petroleum diesel will disappear from California by 2028. By 2032, that percentage rises to 95%.2

Since sustainable fuels are one to 10 times more costly in Mexico, producers have had to find workarounds to make their business profitable. Under Mexican laws, any type of gas injected into the country’s grid is compensated the same, whether that is natural gas or biomethane. Subsequently, this means that there is no real incentive to produce a cleaner fuel such as biomethane due to its increased costs. Since Mexican producers are unable to obtain renewable certificates for producing biogas locally, smaller biogas producers in Mexico, with more risk appetite, are obtaining Low Carbon Fuel Standard credits in California and selling them to US buyers—making their Mexican production profitable.  Although this workaround is helping small producers, it’s preventing large players (with less risk appetite) such as Engie, from fully committing to developing biomethane projects in Mexico.

This scenario could change substantially with the next administration. AMI predicts that there is a 50% chance that a biofuel law or mandate will be put in place if Claudia Sheinbaum wins. Undoubtedly, there will be resistance from Pemex and political pressure to keep the state oil company’s monopoly over fuel production, but there are three main reasons that point to a potential biofuel law by Sheinbaum:

  1. Sheinbaum is an electric engineer by formation, which means she understands the benefits of clean energy and sustainable fuels better than most politicians.

  1. It’s a strong personal interest for the presidential frontrunner. As mayor, she developed a used cooking oil-based biodiesel plant in Mexico City, and she published a paper in 2013 on the “Potential of biodiesel from waste cooking oil in Mexico.”

  1. Lastly, it’s a great investment opportunity. An estimated U$50bn per year is going to be invested in sustainable fuels through 2050, and LatAm is expected to receive 6bn (12%) of those investments.

Although most of that investment will be in Brazil, Mexico is expected to take a significant share of that $6bn per year if it puts the right policies in place. As a region, AMI estimates that Latin America will be producing over 15% of total global SAF production by 2030, which accounts for 3.8 million metric tons. In 2023, there were only 0.5mn tons produced globally (i.e., 7x growth by 2030, considering LatAm production versus current global supply). From the demand side, most of the consumption is going to come from industrial and commercial clients, especially in Mexico.

Baja California Norte, Nuevo Leon, the Bajio region, and Mexico state, are naturally where most of the demand will be located as industrial customers are desperate for reliable, affordable, and cleaner energy sources. A significant amount of these fuels will also be used for mid-to-large road transportation, making Mexico City a large demand center. A U.S. manufacturer of glass tiles based in Baja California mentioned to AMI that they spend U$650,000 per year in their annual electricity bill, which is currently supplied via CFE’s Sumnistro Basico agreement. Since electricity prices are volatile and high in Baja California, industrial customers such as glass manufacturers are exploring a switch to the free market to buy alternative fuels.  This is facilitated by the fact that most gas turbines from Siemens and big producers will work with a blend of hydrogen or Renewable Natural Gas.

It is just a matter of time before this type of behavior becomes popular across the region. Companies that start investing in producing sustainable fuels locally, or securing alternative fuels contracts to supply industrial clients, will be the ones that will come out on top of this great opportunity.


  1. Natural Gas Intelligence ↩︎
  2. UC Davis, Aaron David Smith, October 2023. “Petroleum Diesel is Disappearing from California.” ↩︎

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