Mexico’s outgoing president Andrés Manuel López Obrador could still push through a regulatory overhaul of the energy sector before his successor Claudia Sheinbaum is sworn in this October, according to the Baker Institute for Public Policy’s David Gantz.
“López Obrador and his supporters have promised that — as soon as the new Congress is installed in early September and before Sheinbaum takes office on Oct. 1 — they will seek to take full advantage of Morena’s congressional supermajorities,” said Gantz, who serves as the think tank’s Will Clayton Fellow in Trade and International Economics, in a new issue brief.
Sheinbaum, López Obrador’s handpicked successor, was always heavily favored to defeat leading opposition candidate Xochitl Gálvez. However, López Obrador and Sheinbaum’s Morena coalition performed better than expected in down-ballot races across the country, giving López Obrador more leeway to implement major reforms during his lame duck period.
“By the time Sheinbaum is sworn in as president, Morena…and its allies will have a supermajority in the house of representatives, a simple majority in the senate, control 24 of 31 governorships and the federal district, and have supermajorities in at least 26 of the 31 state legislatures,” said the Center for Strategic and International Studies’ Ryan Berg and Rubi Bledsoe in a recent commentary. “With such political dominance in the world’s 12th-largest economy, Claudia Sheinbaum is likely the most powerful woman political leader in the world.”
López Obrador, better known as AMLO, in February submitted a package of 18 constitutional amendments to Mexico’s lower congressional house with substantial implications for the energy sector. The proposed reforms ensure preferential treatment for state power company Comisión Federal de Electricidad (CFE) over its private sector peers, and establish a constitutional ban on hydraulic fracturing in the oil and gas sector. In addition, the reforms would dissolve Mexico’s independent energy regulatory agencies, as well as federal competition watchdog COFECE.
The reforms proposed in February also “would allow for the dismissal of the current (largely independent) Supreme Court and other federal courts with elected judges — approximately 1,600 judges in total — to be replaced by judges of his and Morena’s choosing,” Gantz highlighted.
“In a country where foreign direct investment [FDI] has been discouraged by nearly six years of López Obrador’s efforts to roll back the 2013 energy sector reforms and reestablish virtually complete state monopolies for Pemex and the CFE, the result has been increasing investor uncertainty and looming electric power shortages,” said Gantz. “This uncertainty would be further exacerbated — and the rule of law further eroded — if the proposed judicial reforms…are implemented.”
‘Uncertain Access To Natural Gas’
Moreover, “serious water shortages in some parts of the country, uncertain access to natural gas, pervasive corruption, strengthened drug cartels, reduced personal security, generally low productivity, and expanded government military control in customs, transportation, and other sectors are contributing to an unfavorable investment climate,” Gantz said. “Consequently, FDI is likely to remain stagnant or decline from its current levels.”
Meanwhile, “López Obrador’s ongoing aversion to foreign investment in the energy sector and Mexico’s continued dependence on U.S. natural gas could contribute to an unfavorable investment climate in the near future, particularly if Mexico reverts to single-party control,” said Gantz.
Manufacturing companies in Mexico’s northern border states, along with state power company Comisión Federal de Electricidad (CFE), “are heavily dependent on natural gas imported from the U.S.,” said Gantz. “This dependency has increased in part due to a 30% decline in Pemex’s natural gas production between 2009 and 2023.”
Mexico’s natural gas imports via pipeline from the United States have averaged 6.37 Bcf/d this year to date through July 3, up 452 MMcf/d from the same period last year, Wood Mackenzie data show.
“Fortunately, the U.S. is likely to have an excess supply of natural gas to sell to buyers in Mexico for the foreseeable future,” said Gantz. “However, much of Mexico beyond the northern border states lacks the necessary pipeline infrastructure to transport imported gas.
“The reluctance of foreign investors to finance new pipelines in Mexico due to the risks associated with Mexico’s petroleum sector suggests that reliance on imports of natural gas will not change anytime soon.”
On the environmental front, Gantz noted that, “Ironically, despite a decline in petroleum production, Mexico flared nearly 10 billion cubic meters of natural gas annually as of 2022. This is largely due to insufficient pipeline infrastructure to transport the gas from the southeast to the major consumption areas near the northern border, a situation exacerbated by Pemex’s lack of financial resources.”
In the power sector, CFE’s “lack of funds and technology to expand Mexico’s electricity production or power transmission capabilities has resulted in a series of short-term brownouts in some parts of the country and continued dependence on fossil fuels including natural gas (around 55%), coal (about 6%), and dirty Pemex fuel oil (about 14%),” said Gantz.
