Mexico’s Energy Challenge: Security, Sustainable Transition

In a complex context influenced by external and internal factors, Mexico's energy sector faces multiple challenges in sustainably meeting growing energy demand. US trade policies have disrupted the global economy ,and have caused financial market downturns and increasing uncertainty, which hinders investment decisions across various sectors, including energy.

At the domestic level, Mexico faces several structural challenges, including declining oil production, the financial situation of PEMEX and CFE, the implementation of constitutional reforms in the energy and judicial sectors, GDP forecasts below 1% for 2025, and a government budget deficit that is proving challenging to reduce. These factors create an environment of low certainty, an essential investment component.

To overcome these challenges, it is crucial to recognize that Mexico is not an oil-rich country, and that energy security cannot rely solely on PEMEX and CFE. The key lies in effective collaboration between the government and the private sector to develop a joint investment strategy that optimizes available resources and promotes the progressive integration of renewable energy. This approach will enable an orderly energy transition, balancing sustainability with energy security.

Natural Gas: A Key to Energy Security

Mexico must reduce its energy dependence to achieve a stable long-term supply. Currently, the country benefits from its proximity to the US market, accessing competitively priced natural gas through a robust import pipeline infrastructure. However, critical challenges remain, such as the lack of storage capacity, which makes the country vulnerable to supply disruptions. Additionally, investment in infrastructure is essential to improve connectivity and access to natural gas in strategic regions.

Projects such as the Puerta al Sureste gas pipeline and the expansion of the Mayakan system will strengthen supply in the southeast and the Yucatán Peninsula. However, their success will depend on the timely construction of necessary distribution branches. With 60% of power generation dependent on natural gas and PEMEX internally consuming most of its production, Mexico must focus on developing unconventional reservoirs. These have an estimated potential of 64 billion barrels of oil equivalent, which could transform the country's energy dynamics. Mexico must overcome ideological and regulatory barriers to seize this opportunity while fostering technological and operational capabilities.

Oil Production: Realities and Perspectives

There are two undeniable realities: Mexico's main offshore oil fields are in rapid decline, and PEMEX's financial situation negatively impacts public finances. Since 2018, production has dropped by 18%, with a 6% decline in the past year alone. However, stabilizing production and achieving sustainable growth is possible through the development of unconventional reservoirs and deepwater.

The Burgos, Tampico-Mizantla, and Sabinas basins are similar to Texas and Louisiana, where the United States has ramped up its oil and gas production thanks to fracking. Mexico can leverage its geographical proximity to access technology and specialized expertise, replicating international success stories like Argentina's (Vaca Muerta). To do so, it is crucial to review the existing legal framework and establish clear conditions for private sector participation, enabling strategic investments that complement Pemex's limited resources.

Meanwhile, deepwater field development, such as the Trión project, must ensure that PEMEX has sufficient resources to meet its partnership commitments. Lakach is another example of the sector’s challenges, as its economic viability has been an obstacle for years, and alternatives are currently being evaluated to enable its exploitation.

Furthermore, several operators have terminated their contracts early for blocks allocated after the 2014 Energy Reform, creating uncertainty for the deepwater landscape. In this context, swift decision-making is essential, particularly given that most prospective resources in the Gulf of Mexico have yet to be explored and development times are lengthy, the clock is ticking, and we probably are on the verge of leaving deepwater resources buried forever.

Renewable Energy: Regaining Momentum

Until 2018, Mexico experienced a relatively rapid growth in renewable energy adoption, but investment has declined in recent years. However, a shift in government policy now suggests a renewed focus on integrating renewables into a long-term strategy.

The recently debated legal framework in Congress prioritizes CFE’s role but also allows for private sector participation. It remains necessary to analyze the regulatory and contractual conditions that will enable the development of wind, solar, and energy storage projects — critical components for the stability of Mexico’s electricity system.

Mexico must align with global advancements in renewable energy, adopting best practices and leveraging technological innovations in the generation, storage, and distribution of clean energy. Learning from successful models, such as renewable energy financing in Europe or U.S. regulatory frameworks that have promoted clean energy growth without destabilizing the electricity system, is essential.

What Should Mexico Focus On?

1. Regulatory Clarity and Transparency: The government must provide legal certainty to attract private investment and foster energy security with a vision based more on data and global trends than on ideological considerations.

2. Development of Unconventional Reservoirs: Mexico should take advantage of its proximity to the United States to adopt technology and knowledge that will reduce the learning curve in the exploitation of these resources. This should also consider the promotion of national content and the development of local talent.

3. Natural Gas Infrastructure: Expanding the storage and distribution network is a priority to ensure supply and reduce vulnerability to external disruptions.

4. Renewable Energy with Legal Stability: The energy transition must include a regulatory framework that allows for the effective integration of renewables without creating conflicts between CFE and the private sector.

Mexico stands at a critical turning point in energy policy. The key to addressing current challenges lies in a combination of energy security, strategic investment, and a sustainable transition that ensures the country’s long-term energy supply.