Andres Manuel Lopez Obrador was sworn in as Mexico’s president on December 1, and his term of office could have far-reaching consequences for the country’s energy policy.
Lopez Obrador’s leftist National Regeneration Movement (Morena) party will lead a coalition government that looks set to restructure key parts of the economy such as energy.
"We will carry out a peaceful and orderly but also deep and radical transformation," the new president said in his inaugural address to Congress. He has criticised the neo-liberal economic policies of previous administrations and vowed to reverse aspects of economic policy he deems to be damaging to society.
Though the president has recently softened his overall opposition to Mexico’s landmark energy reform that opened up oil and gas to private investment after eight decades of central control, he has yet to confirm whether Mexico’s next scheduled oil tenders will take place on February 14 as planned.
Lopez Obrador has said he wants to expand oil production by more than 600,000 bpd by the end of his presidency in six years’ time, of which some 280,000 bpd should come from projects being developed by private companies. He affirmed his intention to expand Pemex’s role at the heart of the Mexican oil industry, which many view as a regressive step and one that will make driving up oil production, which is at four decades lows, more challenging. Pemex’s crude production sank to 1.816 million bpd in August. This year’s output goal was set at 1.951 million bpd but is more likely to be around 1.84 million bpd.
The incoming administration also wants to slash gasoline imports but its plans to build at least one new refinery look risky for two reasons. First, a major new refinery project would suck investment away from the E&P work that is vital to reverting production losses. Second, diverting crude output to a domestic refinery would starve the treasury of much-needed export receipts.
This policy agenda and news that Pemex had imported US light crude for the first time since the 1960s in October, saw Fitch Ratings move the state-run oil company to a negative outlook from stable. Moody’s Investors Service also cautioned that Mexico could lose 2 points of GDP if it stopped exporting oil, which would happen should crude flows be redirected to new domestic refining infrastructure.
A shift to a refinery-focused model, instead of oil exports, would reduce Pemex’s ability to pay taxes. This would be a problem for the new president as the NOC is still a significant source of government revenue.
While there is still conjecture about the future of oil bid rounds, one aspect of Lopez Obrador’s energy policy that is crystal clear is his opposition to hydraulic fracturing (fracking) of shale reserves. "Once and for all I tell you, in all of my term, there will be no fracking in Mexico," the president said in a speech in October. "We have to produce oil but we’re not going to produce or extract with this fracking technology."
This decision could impair Mexico’s ambitions to reverse production declines, with the National Hydrocarbons Commission (CNH) estimating the country has around 60 billion boe of shale oil and gas reserves. The CNH has also estimated that shale oil could boost output from the Tampico-Misantla Basin to 775,000 bpd by 2032. It currently stands at less than 90,000 bpd.
That said, despite its proximity to the booming US shale market, developing Mexico’s own unconventional resources is problematic for several reasons, the main ones being a lack of water and drug cartel violence in prospective drilling areas.
Shale assets were due to have been offered in the February bid round but that aspect of the auction has been cancelled, which has led some to speculate that the whole thing might be called off soon. Local media reports have recently quoted the new energy secretary as saying there would be no tenders until 2021, but that has not been confirmed yet.