For an observer searching for clues about the energy policy of incoming Mexican President Andrés Manuel López Obrador, it all depends on whether you listen to the president, his economic advisers or his energy advisers.
“He has said all the right things and named all the wrong people,” said Jorge Guajardo, a senior director at the Washington consulting firm McLarty Associates and a former Mexican diplomat. “If, as you say in the United States, that personnel are policy, then we should be concerned.”
López Obrador has pit the pragmatists against the more extreme populists. The latter group includes an agronomist close to him, a congresswoman who advised his campaign and an aging politician long devoted to keeping foreign investment out of Mexico’s oil sector.
The dividing line on energy policy has been whether you believe oil-rich Mexico can manage and finance its own state-owned energy industry or whether you believe that Mexico could use some help. Over 14 years, Mexico’s crude oil output has dropped from 3.5 million to 1.9 million barrels a day, López Obrador said last week. The country’s petroleum refineries are running at less than 40 percent of capacity.
All this is tied together with tensions between Mexico and the United States. Most of the big companies eyeing opportunities in Mexico are based in the United States. And President Trump’s insistence on gutting the North American Free Trade Agreement and his campaign to build a physical wall between the two countries has sharply increased frictions.
The outgoing Mexican president Enrique Peña Nieto had embraced reform and the opening of the energy sector.
He oversaw the change in the Mexican constitution, which since 2013 had walled off the country’s oil and gas industry and barred foreign investment in it. Only four years ago, Mexico held its first competitive round of international bidding for exploration and production contracts. Mexico has signed more than 100 of those contracts, and they are expected to ultimately attract more than $160 billion over a number of years.
The incoming López Obrador, however, spent much of his career opposing foreign investment in the state energy sector. The populist leader and his top economic aides have said he would respect the private contracts signed so far, but AMLO, as the president is known, has also pointed toward an effort to rejuvenate the state-owned oil company Pemex.
In recent days, López Obrador has said he would invest $9.4 billion in the state-owned sector, including two new oil refineries and the renovation of six existing ones. The president wants to give $4 billion to Pemex for exploration. And he wants to boost Pemex production from 1.9 million barrels a day to 2.5 million a day within two years.
All these are tall tasks, industry experts say. The construction cost of just one large refinery could range from $10 billion to $15 billion. And construction time is usually twice as long as what the new team in Mexico plans to allow, industry experts said. There are financial constraints, too. Pemex budgeted about $750 million for refineries this year. It remains unclear whether Pemex could raise that much additional money.
“I think that that is an unrealistic expectation that you can dramatically increase Mexican oil production just by telling Pemex to go ahead and produce more oil,” said Duncan Wood, director of the Mexico Institute at the Wilson Center. “It takes a long time to turn the ship around. Pemex has been going in this direction of decline for a long time. Pemex should be doing much better; I agree with that. But it will take a lot longer to get Pemex in the position where it was 10 years ago.”
More sobering for foreign investors is the energy team the new president is assembling. For the post of chief executive of Pemex, López Obrador would install Octavio Romero Oropeza, an agronomist. Guajardo described him as “a small-town politician” with no background in the energy sector. But others say that Romero Oropeza and the incoming president are very close.
As head of the state electric utility, López Obrador wants Manuel Bartlett, an 82-year-old politician who was alleged to have been linked to human rights abuses when he was in politics years ago. Bartlett has also strongly opposed private investment in the electricity sector.
López Obrador also plans to name Rocio Nahle, a 53-year-old congresswoman and former chemical engineer, as his energy minister. “Investors can be calm, we’ll respect the law,” she said in a February interview with the Wall Street Journal about the private contracts. But she added that although it was possible the new government would auction more contracts, “I doubt there will be good results.”
Nahle has proposed to renovate the six refineries in seven months, something the energy industry views as impossible.
López Obrador's track record hasn’t soothed foreign investors. On April 11, 2008, he led a coalition of left-leaning legislators as they stormed Mexico's National Congress and barricaded themselves inside to protest then-President Felipe Calderón's oil policy, which would have allowed Pemex to work with third-party companies on technically challenging projects.
On. Oct. 31, 2014, Mexico's Supreme Court blocked López Obrador's motion to hold a binding, nationwide referendum to abolish the energy policy change.
On Nov. 23, 2015, to protest rising retail power prices, López Obrador promised to defend Tabasco residents who weren't paying their electricity bills.
The conflict over private investment isn’t just about foreign investors. In July 2017, Mexico’s energy ministry opened the onshore portion of the Burgos Basin, a shale-rich area in northeastern Mexico, for natural gas exploration and development by private companies. It was the first time private firms were offered access to the Burgos Basin for development since Pemex was created in 1938, according to the Energy Information Administration.
Private investors were also poised to play a leading role in adding renewable energy to the electric grid; those plans are on hold, too, energy experts said.
Analysts say that the incoming energy team is at odds with groups of policymakers at places such as Mexico’s Treasury Department.
“The team on energy is projecting a different message than the economic and financial team,” Wood said. “The economic and financial teams are projecting openness and saying that Mexico will continue with orthodox policies.”
Wood said the Mexican treasury was looking forward to the benefits from private contracts, such as taxes. “There is a tension in the new administration that needs to be resolved if we are really going to know what its policies are.”
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Meteorologist Kelvin Droegemeier also aided the National Science Board in the George W. Bush and Obama administrations. “His selection drew early praise from the scientific community Tuesday,” Romm writes. “Yet Droegemeier still may have to overcome a tough Senate confirmation process, given that Democrats and Republicans have regularly locked horns over many of Trump’s nominees. This time, some Democrats could turn Droegemeier’s selection into a moment to fight the president on his energy and climate policies, more than a year after Trump announced plans to withdraw the United States from a major international carbon-reduction treaty.”
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— EPA issues voluntary recall of trucks: The EPA announced what it called the “largest voluntary truck emissions recall to date” on Tuesday, recalling half a million trucks with faulty pollution controls made by Indiana-based Cummins Inc. The recall affects medium-and heavy-duty trucks for model years 2010 to 2015. The issue was discovered through tests for emissions standard compliance, which are conducted by the EPA and through the California Air Resources Board.
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Also: Take a look at detailed maps of the massive Carr blaze, including the one above, via The Post's Lauren Tierney, Kate Rabinowitz and Aaron Steckelberg here.
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