Opinion

Mexico Election & Energy + Infographic + FACTBOX Lopez Obrador Victory Clouds Future For Mexico's Energy Reform - S&P Global Platts

Posted by OilVoice Press - OilVoice

03-Jul-2018


Mexico's presidential election Sunday has put energy reform opponent Andrés Manuel López Obrador in power, creating uncertainties for the country's still-nascent energy liberalization.

Campaign comments on his plans for oil reforms have been mixed. S&P Global Platts Analytics expects he will slow down oil tenders, while possibly raising local content requirements. But his coalition is unlikely to secure the two-thirds Congressional majority required to reverse constitutional reforms, and existing contracts do not appear to be at risk. Therefore, the impact on production forecasts through 2025 will be minimal.

Here's what you need to know about AMLO, energy reform to date and uncertainties ahead as Mexico's emerging energy market comes under populist rule:

AMLO ENERGY ACTIONS

Five bold instances stand out in AMLO's history. Time will tell if they foretell his stance as president.

  • November 23, 2015: In protest of rising retail power prices, AMLO promises legal defense to Tabasco residents that don't pay their electricity bills. Around 90% of customers fail to pay.
  • October 31, 2014: Mexico's Supreme Court blocks AMLO's motion to hold a binding, nationwide referendum during the 2015 congressional election to abolish the energy reform.
  • April 11, 2008: A coalition of left-leaning legislators, led by AMLO, storm Mexico's national congress and barricade themselves inside to protest President Felipe Calderon's oil reform, which would have allowed state-owned energy company Pemex to work with third-party companies on technically challenging projects. The coalition believed this step could lead to the privatization of Pemex.
  • January 29, 1996: AMLO organizes fishing, farming and aborigine communities to block access to Pemex's oilfields in Tabasco as the state sought remuneration for environmental damages.
  • December 8, 1994: Following his loss of the governorship of Tabasco in an allegedly fraudulent election, AMLO supporters answer his call for civil disobedience by blocking Pemex's facilities in the state including oilfields, a shipping port, and a gas processing plant.

AMLO ON THE CAMPAIGN TRAIL

More recently, AMLO has spoken out against certain elements of the energy reform including foreign participation, but it is unclear how much of that could actually impact policy. According to his National Development Program, statements by top advisors and campaign pledges, AMLO will:

  • “Reverse the trend of privatization, foreign participation and dependency” experienced in Mexico's energy sector since the reform began.
  • Postpone Pemex's farmout program until the award scheme is revised.
  • Consider halting further upstream drilling rights auctions.
  • Prohibit oil exploration offshore of the Yucatan Peninsula where Mexico's potentially significant subsalt play is located.
  • Freeze gasoline and diesel prices until two new refineries are built in Mexico.
  • Review for corruption all upstream and power contracts awarded to date to third parties.
  • Cut Mexico's dependency on natural gas by building new hydropower rather than natural gas power plants.
  • Modify existing fuel oil plants to burn natural gas rather than invest in new facilities.

AMLO estimated Mexico will produce 2 million b/d of oil in 2024, just above today's levels. The current administration had forecast 2.5 million b/d. Platts Analytics estimates 2024 production of 1.7 million b/d.

ENERGY REFORM ACROSS COMMODITIES

Since 2013, Mexico's energy reform has attracted significant private investment and planted the seeds for competitive markets. Here's what has been done, and what hangs in the balance as the new regime takes over:

Oil

  • Despite private investment in recent auction rounds, Pemex still holds virtually all production in Mexico — 1.86 million b/d in May.
  • Mexico's crude exports have averaged 1.2 million b/d over the last year, with just over half of that going to the US, followed by Asia and Europe.
  • CNH, Mexico's hydrocarbon regulator, has awarded 110 blocks to over 70 companies across 10 auctions, which SENER, the energy secretary, forecasts could yield up to 1 million b/d by 2030.
  • The country still has more than 400 blocks pending to be awarded in its five-year auction plan.

Refined products

  • The fourth-largest global consumer of gasoline, Mexico still imports more than 70% of its supply, with Pemex dominating that market segment.
  • Nearly 40 brands have opened retail gas stations, including several oil majors.
  • There are 50 new storage projects with a combined capacity of 30.7 million barrels in development.
  • Mexico is in the process of opening its jet fuel market and has planned a logistics open season to jump start competition.
  • CFE, the state-owned electric utility, plans to reconfigure 10 million barrels of storage capacity to house gasoline and diesel instead of fuel oil.

Natural gas

  • 25 new pipelines are under construction in Mexico to serve residential and commercial uses as well as the power sector.
  • According to CRE, Mexico's energy regulatory commission, nearly a third of gas sales in Mexico are now made by a shipper other than Pemex and CFE, now at market prices.
  • Imports from the US account for about 65% of Mexico's gas supply, which should grow as the pipeline network is completed.
  • Cenagas will auction a series of underground storage projects to meet Mexico's strategic storage requirements.

Petrochemicals

  • In March 2016, Brazil-based Braskem and Mexico's Grupo Idesa began ethylene and polyethylene production at its 1.05 million mt/yr ethane cracker in Veracruz.
  • Pemex has been receiving ethane cargoes from the US as part of a six-month trial run testing the long-term viability of imports.
  • Earlier this year Pemex awarded a three-year tender to Swiss company Vitol for the supply of ethane for cracking at Cangrejera and Morelos.

Power

  • The wholesale electricity market now has functioning nodal prices, but a lack of trust in the market has limited trading activity.
  • Mexico has over 7 GW of wind and solar under construction as a result of competitive electricity auctions.
  • Mexico has set a goal of generating 35% of electricity from clean sources by 2024.
  • The transmission system must draw private investment to support growing renewable generation.



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