Mexico’s Next President Will Pour Billions Into Oil

Lambert here: That’s nice.

By Nick Cunningham, a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. .

Mexico’s national oil company is about to receive an injection of cash.

Incoming President-elect Andres Manuel Lopez Obrador, or AMLO, has promised to invest around 175 billion pesos ($9.4 billion) into the state-owned energy companies. One of the goals is to reverse the decade and a half of declining oil production.

“Fourteen years ago, oil production was 3.4 million barrels a day. Now it’s 1.9 million barrels a day,” AMLO at a news conference. “In 14 years, we’ve lost 1.5 million barrels a day in production, a downward trend because the oil industry was abandoned.”

The plan is a shaky one, perhaps because when it comes to the specifics, AMLO has only articulated a muddled notion of what he wants to do.

Outgoing President Enrique Pena Nieto ended more than seven decades of state-run monopoly over Mexico’s energy sector, opening up the country to private control and investment from international companies. The bid to partially-privatize the energy sector has led to a series of auctions, dozens of awarded licenses and tens of billions of dollars in commitments from some of the largest oil companies in the world.

AMLO staged fierce opposition to those reforms several years ago as they were implemented. His opposition softened during the presidential campaign, although he still threatened to revisit awarded contracts and/or suspend further auctions, at a minimum.

He has vowed to reverse declining oil production but he has not articulated how that can be achieved. Presumably, he wants that done through state-controlled Pemex, long considered a pillar of national pride.

AMLO’s promise to inject more than $9 billion into state-owned energy companies is likely a signal that that’s the course he wants to take. He also confirmed that he would appoint Rocio Nahle as energy minister, who was his top energy adviser during the campaign. She has favored a nationalist approach to energy policy – she tweeted a message of support for stiff local content rules for energy projects a few months ago.

To run Pemex, AMLO has tapped Octavio Romero Oropeza, an agronomist. Critics point out that he has no experience in energy. During the campaign, AMLO signaled a willingness to work with the private sector and not try to roll back the energy reforms. On the other hand, his personnel choices on energy skew towards the nationalist types. “The team on energy is projecting a different message than the economic and financial team,” Duncan Wood, director of the Mexico Institute at the Wilson Center, told . “The economic and financial teams are projecting openness and saying that Mexico will continue with orthodox policies.”

Yet, it is unlikely that he will try to aggressively roll back the energy reforms enacted during the Pena Nieto administration, not least because they would require a constitutional change. AMLO did shock the country with a resounding victory in the presidential election, sweeping wins for his party in both houses of the Congress. The wins exceeded expectations, granting his party, Morena, majorities in both the Senate and the Chamber of Deputies (including coalition support from two other parties). But making changes to the constitution is likely too much of an uphill climb, even after taking into account his impressive victory.

More to the point, because AMLO wants to restore lost oil production, he probably recognizes that the quickest and cheapest way to do that is to allow international companies to do the heavy lifting. The likes of ExxonMobil, Royal Dutch Shell, Eni, Chevron and others are pouring money into offshore Gulf of Mexico. They can probably do more than Pemex can – especially given Pemex’s track record – and at much less expense to public coffers.

Nevertheless, AMLO still has nationalist goals for the energy sector. Only, he has signaled an intent to spend heavily on the downstream sector in an effort to halt the slide in domestic gasoline production. The plan calls for around $2.6 billion to rehabilitate Pemex’s six aging refineries, while also breaking ground on a new refinery in Tabasco that would cost $8.6 billion over three years.

That could mean he leaves the upstream sector alone, or mostly alone, at least. He has still promised to review more than 100 contracts awarded to ensure they are up to snuff. But his camp has sent signals that they wouldn’t do much to interfere with these. “The auctions are going to continue if everything we find is alright,” Alfonso Romo, a business tycoon and top economic adviser to AMLO said in June, according to . He emphasized that AMLO had personally taken that message to investors. “He said it in New York. Andres Manuel, not Alfonso Romo.”

As a result, the injection of some $4 billion or so into Pemex is aimed at helping the state-owned company revive output. This strategy would seem to work in parallel to the already-awarded contracts to international companies. There is still a lot of uncertainty over what to expect when AMLO takes office later this year, but for now his plan seems to be injecting public money into the energy sector alongside what private industry is already trying to do. But, time will tell.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

8 comments

  1. The Rev Kev

    Interesting this. I have read that last year it was projected that Mexico would run out of proven reserves within nine years so I guess bringing in this capital is an effort to extend this until the offshore oil fields can be developed more. More on this at

  2. Alex Cox

    As is so often the case with privatization, Mexican oil assets were hugely undervalued when sold to the foreign oil companies. I would like to see some evidence that “They (the foreign oil companies) can probably do more than Pemex can – especially given Pemex’s track record.” Pemex has been run into the ground for years by PRI and PAN administrations, with the intention of selling it off to foreign companies – just as the electricity and phone companies were run down before being sold off.

    If AMLO is going to “fix” Pemex he is going to have to put money into the company. This is a given. Why can’t the Constitution be changed? Wasn’t it altered by the current government so as to permit foreign ownership of Mexican oil assets?

    An even more interesting story – strangely ignored by the MSM outside Mexico – is AMLO’s opposition to the construction of a massive airport outside Mexico City. Huge sums of money are involved, as are environmental devastation and big payoffs to the usual corporate billionaires. It will be fascinating to see whether he is able to make good his campaign promise to shut the boondogle down.

    1. Synoia

      big payoffs to the usual corporate billionaires

      I really pleased that big payoffs to Corporate billionaires never happens in the US. Which makes all their payments to Representatives and Senators goodwill contributions .

  3. Pwelder

    ““Fourteen years ago, oil production was 3.4 million barrels a day. Now it’s 1.9 million barrels a day,” AMLO said at a news conference. “In 14 years, we’ve lost 1.5 million barrels a day in production, a downward trend because the oil industry was abandoned.”

    AMLO may not know any better, but Nick Cunningham certainly does – and he should have pointed out: Mexico’s big problem is not that “…the oil industry was abandoned”. It’s that the Cantarell field – one of nature’s greatest gifts to humanity – is in terminal decline.

    Mexico has been producing oil for a long time. They can squeeze out some more barrels with additional drilling on their side of the Gulf, and there are shale and conventional opportunities south of the Rio Grande. That said, I’d be very surprised if they ever get back anywhere near to what they had.

  4. Code Name D

    Why not devolup tidal power? That way you could start cutting your ties to big oil all together. Or did i just answer my own question?

  5. Steven B Smith

    The name of the game in Mexico is rob the joint, sell everything for more debt, it’s how Mexicans stole Bell CA, they just liquidated all public assets with debt.

  6. pat b

    Fossil Energy is dying.

    It’s stupid to invest into Oil exploration, when it’s cheaper to invest into Electric busses, chargers
    and solar power.

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