It would be an exaggeration—but not by much—to insist that oil policy in Mexico hasn’t changed much unchanged since 1938. The expropriation of the oil industry and the creation of a state-run oil company in 1938 and the Petroleum Law of 1940 established the intent of the State to assume responsibility for the supply of crude oil, natural gas, and oil products in Mexico.
Since 1940, the history of the public administration of the oil (and later of the electric power) industries in Mexico has been a matter of tweaking the share of supply the private sector is supposed to provide to complement the supplies by the state-owned Pemex and CFE.
The Energy Reform of 2013-15 was a major tweak—but still a tweak. Private investors were allowed roles intended to complement the supply responsibilities of Mexico’s state energy companies, Pemex and the Federal Electricity Commission (CFE).
The template may be seen clearly on the power side. In the early 1990s, the figure of Independent Power Producer was introduced to allow for private electricity in generation but under an exclusive sales contract with a state power company. It also introduced the figure of Self-Supplier, a legal work-around of the state monopoly on public power generation, the effect of which was to create private power grids for large industrial companies.
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The Energy Reform of 2008 allowed private investment in renewable energy generation, but retail distribution would remain with the state, as it would in the Energy Reform of 2013-15.
The creation of a wholesale power market following the second energy reform was slyly designed to break apart the private power grids, allowing CFE to recapture the lost business represented by the industrial companies that had joined self-supply associations. In a power auction, CFE could low-ball a price and gain the business.
In the spring of 2020, the Energy Ministry and the power grid operator sought to block the coming online of wind and solar generation plants using arguments that would not stand up in the subsequent court challenges.
An analogous story may be told on the oil side. When it appeared in late 2017 that the shallow-water Zama reservoir that had been discovered by Talos Energy would surpass in size any discovery by Pemex in more than two decades, Pemex, with the complicity of the authorities, prevented the project from quickly coming onstream (three years and counting).
It is therefore a mistake to characterize the current government in Mexico as “anti-reform” or “counter-reform.” In suspending oil lease sales in 2018, the president said that he was taking a wait-and-see attitude about the ability of the oil companies to meet their promised production (supply) targets.
The tweaking of the supply responsibilities of public and private producers includes the controversial, year-end changes in 2020 to rules that give the energy minister new authority over the permitting of international commerce in petroleum products.
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The doubling-down on the state’s control over investors and regulators has been accomplished by an inward cultural and intellectual shift away from international engagement. The moral and technical authority of the energy regulators has been diminished, replacing bilingual, English speaking agency heads with foreign university degrees with nominees who lack such qualifications.
Octavio Romero may be the first director-general of Pemex since 1976 who is not a speaker of English. On this account, he was denied a speaker’s slot at the 2019 Offshore Technology Conference in Houston.
In summary, the much-criticized “neoliberal” politicians from 1982-2018 were no less orthodox than the current president. They added market-shiny ornaments to a regime in which the state would remain the energy quartermaster general.
George Baker is the platform director of Energia.com and publisher of Mexico Energy Intelligence™, an industry newsletter based in Houston.