How can a leftist President affect Mexico’s energy policy? Report

Insight 22 June 2018

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Report summary

Mexico will hold presidential elections on 1 July and Andrés Manuel López Obrador has a comfortable 23-point lead over his closest competitor. During the campaign, his energy policy has generally been one of resource nationalism, and scepticism towards strong private sector participation. Yet we expect that once in power, he will maintain a more pragmatic approach, with an emphasis on strengthening Pemex and CFE, but leaving room for private investment throughout the value chain.

Leftist candidate Andrés Manuel López Obrador is set to win the 1 July election
Government stability is not at risk
Macroeconomic stability will hold, albeit with lacklustre growth
What can we expect from AMLO’s energy policy?
- Expect delays in regulation but no major changes in the energy framework
- In Upstream, we would expect a temporary halt to new bidding rounds and Pemex JVs
- Proposal 1: Increase oil production to 2 million b/d by 2024 and 2.5 million b/d by 2035
- Proposal 2: Review awarded contracts
- Proposal 3: Suspend Pemex’s farm-out programme pending review
- Proposal 4: Increase Pemex's budget, cut unnecessary spending and modify its fiscal regime
- In Downstream, emphasis on infrastructure projects will be curtailed by lack of capex availability
- Proposal 5: Build at least two refineries with a capacity of 300 kb/d, adding a gasoline supply of 275 kb/d to the domestic supply
- Proposal 6: Conclude upgrading projects to existing refineries, adding coking and hydro treatment capacity
- Proposal 7: Discuss the optimal tax level for fuels that reflects the true social and environmental costs of private transportation
- For natural gas and hydro, the development of new infrastructure projects will continue to face challenges with landlords and communities
- Proposal 8: To end the ‘irrational’ gas flaring that has been going on for decades
- Proposal 9: Democratise the energy policy, respect the decisions of the communities
- Proposal 10: Increase hydro generation
- In power generation, proposals for thermal power plants and renewables lack strong fundamentals to support their implementation
- Proposal 11: Delay the retirement of the oldest thermal plants
- Proposal 12: Increase renewable power usage