Future of the Energy Reform Tied to Election Results

With June 6 elections approaching rapidly, there is a national sentiment that much more is at stake than just governorships and congress seats. Every vote will also be seen as a mandate of President López Obrador’s Morena and its political allies to continue their policy direction to pull back the reigns on the 2014 Energy Reform and place state-owned CFE and PEMEX at the forefront of the energy sector once again.

Ex-president Peña Nieto managed to push the Energy Reform through Congress by establishing political allies with other parties, while changing Mexico’s Constitution in the process. For the first time, the energy sector pivoted toward an environment with heavy private participation. Boosted by government-driven private auctions, private investment hit a high a point. Nevertheless, since López Obrador took office, a different wind has been blowing in Mexico. The left-leaning president saw the neoliberal reforms as problematically claiming they only benefit private companies. As a result, the president and his party sought to once again bolster publicly owned PEMEX and CFE to lead their respective industries. A slew of measures to reform the energy sector back to its previous state followed. Many of these measures have been met by court suspensions, including the recent congressional attempt to reform the Electricity Industry law. Nevertheless, experts point out that Mexico’s private investment climate has already soured, even though the Supreme Court’s final ruling is still pending.

López Obrador himself will not be on the ballot this weekend, but the elections will serve as a crucial indicator on how Mexico’s 94 million voters feel about what the president sees as the important Fourth Transformation’s policy direction.

According to most polls, López Obrador’s Morena party is expected to remain in power, keeping its majority and swooping up valuable governor spots at the same time. But a landslide victory, as appeared to be a possibility before the COVID-19 pandemic started chafing away at López Obrador’s approval ratings. Now, opposition parties PRI, PAN and PRD have joined forces to cause an upset in the votes.

The results of these elections and the following steps López Obrador will take will undoubtedly be watched closely by Mexico’s private players in the energy sectors. Permitting has come to a grinding halt in the past year and short-term perspectives have either moved to finding a way to survive in the meantime or opted for developing solutions in the less-regulated behind the meter area. S&P Global Platts reported that environmentalists will also be at the edge of their seats: by focusing on national production, CFE has opted not retire 30GW of additional polluting energy assets that do not burn natural gas. This has the possibility to displace over 500 MMcf/d of natural gas. "This would come from high sulfur fuel oil and diesel CFE generation assets, which have produced 2.8 GW in April 2021 only. This is up 18 percent from the same time last year but down 42 percent from 2019 levels" said John Hilfiker, Senior Energy Analyst at Platts.