Mexican Government Carries Out Expropriation of Hydrogen Plant

On 29 December 2023, the Mexican Government by Means of the Ministry of Energy issued an expropriation of a Hydrogen Production plant located inside the Tula Refinery on the state of Hidalgo, this decree by itself outlies a change in criteria from the current Mexican Government regarding hydrogen which we will explain in detail below:

Background

According to the expropriation Decree (the Decree) the hydrogen plant in question was purchased by the Company Air Liquide Mexico S. de R.L. (a Mexican subsidiary of a French company)  by a sale and purchase agreement executed by and between Air Liquide Mexico S. de R.L. de C.V and Pemex Industrial Transformation (Pemex), while the land where the plant was located  was granted on gratuitous bailment to Air Liquide by Pemex.

The hydrogen was used to operate the processing plants of the Tula Refinery and produce gasoline and diesel. Consequently (according to the Decree) the hydrogen was fundamental for the operation of the Tula Refinery and consequently it was decided by the Mexican Government that in order to guarantee the production at the refinery and guarantee the supply of hydrogen ( in the outlook on an increase in demand of the same worldwide) it was necessary to proceed with the expropriation of the hydrogen plant.

Analysis of the Decree

Once established the above, it is necessary to analyze the content of the decree in order to establish  the content of the same that gives us a glimpse of the policy of the government towards hydrogen generation.

1. The Mexican Government is acknowledging the importance of Hydrogen and is considering a relevant part of the energy mix.

After years of little to no mention of hydrogen and its relevance in the production of energy and ammonia for fertilizers the Mexican Government is acknowledging in the Decree that hydrogen be a fundamental component in the energy basket for the country.

This can act as a double edge sword, since the current government (and possibly the new one if the ruling party wins the elections that will take place next June) can take a more protectionist approach towards the generation of hydrogen, seeking to benefit Pemex and the state run electric company (CFE) making more difficult for the companies to invest directly on the sector.

2. The Mexican Government seeks to incorporate clean energy generation as part of Pemex activities 

Among the reasons provided as cause for the expropriation is the fact that the technology of the Hydrogen Generation Plant will allow Pemex to develop new facilities that will allow for production of clean energies. 

However, it is important to consider that the fact that this hydrogen plant was expropriated does not entail a generalized risk for hydrogen producers in country, since, the way this particular plant was operating provided the perfect combination of circumstances for the same to be expropriated for the reasons outlined below:

1. The Hydrogen Plant was operating inside a Pemex Complex.

The refinery of Tula Hidalgo is owned and operated by Pemex such is the case that the plant was operating in land on gratuitous bailment by Pemex. 

2. The Hydrogen plant was directly related to hydrocarbons processing which is considered an activity essential for national security.

The ground for the expropriation and the reason why the expropriation decree was issued by the Ministry of Energy is not because the Mexican Government has the ownership of the hydrogen produced in the country, since, as of the date of this article hydrogen is not considered property of the nation or an industry of strategic priority as it is the production of Hydrocarbons. Hence, the grounds that were used by the Ministry of Energy to carry out the expropriation were that the hydrogen was used to produced refined products that are under their purview and are considered essential for national security. 

3. The land where the plant was located was not owned by the hydrogen producer.

As mentioned above the land where the hydrogen plant was located is inside the Tula Refinery and owned by Pemex, hence in order to carry out the expropriation it was only necessary for Pemex to terminate the gratuitous bailment agreement and for Pemex to pay the cost of the hydrogen plant.

Conclusion

Even if the fact that a hydrogen plant was expropriated, is not good news for the hydrogen industry in Mexico, it is important to consider that this expropriation was carried out in very specific circumstances which allowed this expropriation to be carried out. 

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