Mexico’s President-elect Claudia Sheinbaum has yet to articulate a clear natural gas and energy policy, according to a veteran in the nation’s energy sector.
“The president-elect made a lot of promises in her campaign, and there are a few that contradict each other in the energy sector,” Pedro Luna, Mexico business director at Global Energy Markets Consultants (GME), told NGI’s Mexico’s GPI. Sheinbaum will assume the presidency on October 1.
“She’s been saying that she’s pro-private investment as well as pro-public investment in the state companies. She’s also said that she’s in favor of the energy transition and renewables, but at the same time says she’s going to continue supporting” Petróleos Mexicanos (Pemex) and Comisión Federal de Electricidad (CFE).
He added, “There aren’t many sources of public financing available and she will have to look to the private sector – or at least seek private-public partnerships – to allow for more investment in electricity transmission, distribution and generation.”
Luna is the Mexico Business Development Director at GME, an international consultancy company that offers integrated solutions to the public and private sector in the energy industry. An economist by trade, he has more than 25 years of experience in the economic, financial and energy industries, and has specialized in the design of public policies in energy sector regulation and project management.
Luna worked at the Mexican Finance Ministry from 1998-2015, where he oversaw the pricing formulas for national fuels and electricity rates, and later worked at CFE from 2015-2019. He has been at GME since 2019 and is the company’s lone representative in Mexico. He is also a part-time professor of global trade at the Universidad Panamericana in Mexico City.
He holds a PhD in philosophy in public and international affairs from the University of Pittsburgh, as well as a master’s degree in public policy and a bachelor’s degree in economics from the Instituto Tecnológico Autónomo de México (ITAM).
Editor’s Note: NGI’s Mexico Gas Price Index, a leading tracker of Mexico’s natural gas market reform, offers the following Q&A column as part of a series of periodic interviews with market experts of natural gas in Mexico. Luna is the 128th expert to participate in the series.
NGI: I saw that you recently commented on the news that the national power system operator, Cenace, will no longer issue public alerts when the country’s electricity supply is at low and there is a risk of blackouts. What do you think of that decision and what that tells us about the state of the Mexican electricity system currently?
Luna: This is a pattern that we’ve being seeing throughout the administration. There has been a consistent effort to restrict access to information, and they have justified with multiple explanations. What the government calls “austerity measures” has been reflected in many government agencies and ministries, particularly in the energy sector, and as a result, there’s been a lot less statistics and public information available. In my role, I am constantly consulting and seeking information from the Energy Ministry and the Energy Information System (SIE), for example. It has been increasingly difficult to find available public information and there is consistently less available. So, I think that’s one reason for the recent announcement from Cenace. This is another effort to limit public information.
NGI: What do you think is the objective behind that decision to make public information less available, particularly in the energy sector?
Luna: With less information available, it makes it more difficult to legally defend yourself. If you want to issue an injunction, known as an amparo, against a law or initiative, it is hard to do without access to the information needed to demonstrate your case or make comparisons or measurements. This interferes with progress and, if you can’t make comparisons or have relevant information to demonstrate an issue or a concern, it makes it a lot more difficult to complain. So, the withholding of public information minimizes your ability for legal recourse and weakens your ability to make a case for something that might be impacting your business. It makes it more difficult to air a complaint against something if there isn’t public information to support your claim.
So, in my opinion, that is why Cenace is no longer publishing public information when there are critical shortages in electricity. They don’t want to be criticized and want to avoid outcry or fear from the public. Instead of having to explain the technical aspects of the electricity shortages, they consider it easier to restrict this information from the public and share it only with market participants and companies that Cenace considers priority consumers. In our case, we are considered among those reliable or trustworthy electricity users by Cenace, so we still have access to the Cenace database. But other people now cannot, and therefore they can’t complain or criticize the national electricity system.
And as for what this tells us about the state of the electricity system, it’s clear that we have a critical situation on our hands. There are some contradictions in the government’s presentation of the facts. On one hand, they are saying that the CFE has invested $22 billion during this administration, claiming these are record highs in investment, though at the same time, we’ve just had power outages across the country. So where has this investment gone? What projects has it financed? It can be hard to tell.
Meanwhile, there’s been a very large increase in electricity demand in Mexico, particularly in the summers, and in some regions of the country there’s been as much as a 10% spike in annual demand. As a country, electricity demand is increasing 3.8% each year, and there really hasn’t been a lot of investment in generation. The lone large generation plant that has received investment is Topolobampo III, but that was only 800 Megawatts or so.
And as there are continued increases in electricity demand, there is more effort by the CFE to restrict private investment and strengthen its hold on the sector. For that reason, it’s hard to imagine there won’t be more shortages of power in the short term. And it’s clear the system is already in a critical situation, not just in generation, but also transmission and distribution.
NGI: Mexico’s new president, Claudia Sheinbaum, will take office in October. What do you expect we will see change in the Mexican energy industry in the short term?
Luna: I obviously don’t have a crystal ball, but I’ll tell you what I think. The president-elect made a lot of promises in her campaign, and there are a few that contradict each other in the energy sector. She’s been saying that she’s pro-private investment as well as pro-public investment in the state companies. She’s also said that she’s in favor of the energy transition and renewables, but at the same time says she’s going to continue supporting Pemex and the CFE in the mission towards energy sovereignty.
What’s contradictory is that, whatever is done in the name of the energy transition has a direct impact on either Pemex or the CFE. If you want to produce less fuels, ok, but Pemex isn’t currently prepared to stop producing fuel oil, which it sells. If you want to commit more effort to the energy transition and develop more renewable power or a combined-cycle plant, ok, but that would make the CFE’s older thermal plants obsolete, and President López Obrador promised he wouldn’t close them.
These proposals are contradictory and, regardless of the decisions made, Sheinbaum is going to face opposition from the CFE, Pemex, their unions and those from the Morena party that oppose opening the market. As we know, Pemex is in a very complicated financial state and Sheinbaum has said she won’t seek fiscal reform nor raise taxes. In that case, there aren’t many sources of financing, and she will have to look to the private sector, or at least seek private-public partnerships to allow for more investment in, as we discussed, electricity transmission, distribution and generation.
NGI: You mention some of the contradictions in the government’s rhetoric and it seems to apply to natural gas as well. The country says it wants to achieve energy sovereignty, though at the same time, is importing record volumes of natural gas from the U.S. How do you see the Mexico-U.S. natural gas relationship developing during the Sheinbaum government?
Luna: The natural gas imports will continue. I don’t really see another option and, as we’ve seen, there have been announcements that these imports are expected to increase. A major part of that reason is to feed the LNG export terminals that are being developed, which will be sourced with U.S. natural gas to be exported to Europe and Asia, either via the Pacific or Atlantic coast. Another question about these liquefaction plants that will be used to export LNG, is that we don’t know how much these projects will actually benefit Mexico in terms of investment. I personally don’t think it will provide much benefit for the country. Maybe in terms of know-how about the operations of the LNG export plants, but the gas itself will be entirely used for resale.
Additionally, large percentages of the capacity on the pipelines that are being constructed in the north and northeast will be dedicated to those LNG projects, which will limit the amount of supply that can be shipped elsewhere, such as the south of the country, whereas we know there is a scarcity of supply.
So, in terms of natural gas, I don’t expect that there will be many changes, precisely because there are already very large projects and investments that are already in place and have long-term commitments. There are already large-scale investments in place for the Mayakan pipeline as well, for example, so it seems the lack of supply in the southeast might finally be satisfied and that natural gas will be fed into the new Valladolid and Merida combined-cycle plants. And, because there are so many large projects and investments underway in the natural gas industry, I don’t think the incoming government will want to change much or modify the legal framework, and I imagine the terms of the deals signed during this administration will be respected.
