Mexico’s Energy Reform Benefits Motorists but Counterreform Frustrates Investors, says Mexico Energy Intelligence

HOUSTON–(BUSINESS WIRE)–$HBRIY #energypolicy–In a trilogy of reports by Mexico Energy Intelligence™, an industry newsletter, the recent past and outlook for energy reform are seen as blessings and concerns.

According to one report, Uber drivers in Mexico City are grateful for the Energy Reform of 2013-14 that allows gasoline brands other than Pemex into the market, bringing better value and cleaner restrooms.

The reform also featured international public auctions of oil leases and long-term contracts in the wholesale electricity market. According to a second report, investors welcomed the opportunities during 2014-18, but the music stopped even before the inauguration of Andrés Manuel López Obrador on December 1, 2018. “The new president canceled the oil and power auctions and took measures deemed so irregular that the Biden Administration in July 2022 filed a complaint for alleged violations of the 2020 US-Mexico-Canada trade agreement,” says market analyst George Baker, lead author.

According to the authors, the decision to cancel the auctions was correct—provided that they would be replaced by auctions with market designs that better serve the state and investors, and increase energy for industry, commerce, and millions of energy-poor households.

In contrast, the decision to reposition the two state energy companies, Pemex and CFE, to center stage disrupted functioning markets. In the oil market, the reform introduced a diversity of geological ideas that led to the discovery of a near-giant oil reservoir, named Zama, in Pemex’s backyard. “The government was wrong to appropriate half and give Pemex the role of operator,” insists Baker, who adds, “Zama’s development has been delayed five years with an opportunity cost to the state and investors of billions of dollars.”

Looking beyond the current president’s term, a third report identifies four dozen measures, sorted by degree of difficulty, that the new administration could take to restore investor confidence and increase energy supply. In the category labeled “Unthinkable” is the sale of the Deer Park and Dos Bocas refineries. “As soon as Pemex’s oil union takes over either refinery, it will cease to be profitable,” Baker predicts. “Their sale would make people rethink the idea that energy security requires state ownership.”

George Baker is the managing principal of Baker & Associates, Energy Consultants, and publisher since 1996 of Mexico Energy Intelligence™.

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