Mexico's Energy Sector: Strategic Play for Supply Chain Companies

Mexico's energy sector is in an intriguing state of flux, offering both significant challenges and promising opportunities for international players. According to EICDataStream, the EIC’s (Energy Industries Council) global CAPEX tracking database, a remarkable US$144 billion is being tracked across 150 projects in Mexico. The oil and gas (O&G) sector remains the leading force, representing over 70% of total CAPEX, with hydrogen emerging as an important contender at 12%, and renewables at 9%. This evolving landscape, considering recent governmental shifts and changing international trade dynamics, calls for a closer look for any business aiming to take part in Mexico's energy future.

The upstream sector is a key part, with EICDataStream tracking 72 projects valued at US$22 billion in CAPEX, making up 21% of all oil and gas projects. Major operators like PEMEX, Woodside, Hokchi, Eni, Repsol, and Harbour Energy are leading, with most projects expected to start in 2028 or later. Woodside's Trion deepwater oil project shows progress. Earlier this year, Cosco started building the Floating Production Unit (FPU) for SBM Offshore, and more recently, SLB secured the contract to deliver the development wells, showing strong momentum for the project. Similarly, the Zama deepwater oil field project, still in the pre-FID stage, aims to produce first oil by 2028. Currently in FEED, discussions continue for PEMEX potentially transfer operatorship to Harbour Energy or Grupo Carso (which owns Talos Mexico, a key Zama partner), reflecting a practical approach to private sector expertise. However, some deepwater projects face challenges. The Lakach deepwater gas project is struggling with commercial viability due to fluctuating gas prices. Grupo Carso, acting for PEMEX, is evaluating the project's viability, with renegotiations ongoing to ensure its economic feasibility. On a positive note, Repsol has partnered with Harbour Energy on the Polok/Chinwol deepwater oil development. In December 2024, McDermott was awarded the FEED contract, setting the project on track for first oil around 2028.

The strategic direction of state-owned PEMEX and the new presidential administration under President Claudia Sheinbaum heavily influences Mexico's exploration and production (E&P) sector. PEMEX still struggles with declining output from mature fields and ongoing delays in new well completions. Despite eight new small discoveries (Macavil, Puk, Jep, Tlatitok, Tlatitok-Sur, Sejkan, Konen, Popte) in shallow waters and onshore between 2024-2025, these early findings have not yet compensated for the overall production decline, emphasizing the ongoing need for continuous investment and faster development. A significant constitutional reform in late 2024 officially reclassified PEMEX (and the Federal Electricity Commission (CFE)) as state companies, reaffirming their key role in the nation's energy sovereignty agenda. Despite this reaffirmation of state control, the Sheinbaum administration has shown a pragmatic openness to private sector involvement, especially recognizing its vital role in the capital-intensive and technologically complex deepwater sector. PEMEX's ambitious "Work Plan 2025-2030" outlines a clear path forward for E&P. The plan provides for an ambitious increase in natural gas production to 5 Bcf/d, backed by a US$11.5 billion investment in onshore drilling, a massive US$10.7 billion investment to discover 2 billion barrels of new oil reserves, focusing on onshore and shallow water fields, and a goal to stabilize and grow oil output to 1.8 MMb/d by late 2025 through targeted drilling and repairs, with a focus on key fields like Trion, Zama, and Lakach. This plan will likely have a significant impact on both the midstream and downstream sectors in Mexico.

Midstream & Downstream: LNG Export Dreams, Refinery Upgrades, and Petrochemical Revival

Mexico’s planned increase in natural gas production to 5 Bcf/d will drive significant growth in midstream infrastructure including pipelines, processing plants, and storage facilities, particularly in regions such as Veracruz and Tabasco. This expansion aims to support the transport and treatment of higher volumes of natural gas and crude oil, potentially creating new energy hubs. Simultaneously, the goal to stabilize and grow oil production to 1.8 MMb/d is intended to bolster domestic refining capacity, reduce reliance on imported crude, and ensure a steady supply of products like gasoline and diesel, reinforcing Mexico’s energy security and refining system efficiency. The midstream sector is a significant driver of investment, representing 50% of the O&G CAPEX tracked in EICDataStream in Mexico, with a staggering US$48 billion in projected investment. While no new floating LNG export facilities are currently in the planning stages, the focus has firmly shifted to nearly ten colossal onshore LNG liquefaction projects. These capital-intensive ventures account for a formidable US$33.6 billion (a full 75% of all midstream CAPEX) slated for investment in the coming years. Among the titans of this new era, several projects stand out: Sempra's Energía Costa Azul Phase 1 (2.5 mtpa) is already in construction in Baja California; New Fortress Energy (NFE) Fast LNG 1 (1.4 mtpa) is already operational; NFE Fast LNG 2 (1.4 mtpa) is entering pre-construction; and Mexico Pacific's Saguaro Phase 1 (15 mtpa, though recent court documents suggest a downsizing to three trains with a total capacity of 18 MTPA and an extension of the deadline for commencement of exports to 2032 due to unforeseen challenges) is in its pre-Final Investment Decision (FID) phase, aiming for FID by 4Q25, but faces substantial pipeline buildout requirements across challenging terrain. Other significant projects like Amigo (4.2 mtpa) and Gato Negro (4 mtpa) are also in various stages of development, collectively hinting at a potential future of Mexican LNG exports, primarily targeting Asian markets.

Mexico’s LNG export plans face growing uncertainty from political, economic, and logistical challenges. A US leadership change might prioritize domestic energy, risking US shale gas supply for Mexican LNG. Rising global construction costs hinder price negotiations, straining financial models. Additionally, pipeline approval and security issues from southern Texas to Mexico threaten project timelines. These risks raise doubts about Mexico’s LNG expansion and reflect the unpredictable, evolving energy landscape worldwide. In the downstream sector, a staggering US$29 billion, representing 29% of the nation's total oil and gas capital expenditure, is being invested in projects aimed at redefining Mexico's energy independence. Central to this transformation is PEMEX, which is intensely focused on reaching the full potential of its new Dos Bocas refinery (Olmeca Refinery) of 340,000 barrels per day (b/d). Although it recently exported its first cargo of ultra-low sulfur diesel (ULSD), the facility is currently operating at a modest 100,000 b/d. PEMEX is investing nearly US$1 billion by 2030 to revitalize its petrochemical industry. A key part of this plan is the restoration of the Cangrejera complex to increase domestic production of gasoline products, aromatics, and other chemicals. Meanwhile, Proman is building an ammonia plant in Topolobampo to boost fertilizer production. Mexico's strategy of upgrading existing facilities for cleaner conventional fuels, as seen with the Dos Bocas ULSD export, is a pragmatic approach to reducing its carbon footprint and meeting global standards, setting it apart from other countries in the Americas that are focusing on new biofuel projects. And although Mexico has the potential to reimagine its O&G place in the world, it is also strategically placed to further its renewable energy portfolio and take advantage of a potential hydrogen future.

Renewable Energy & The Hydrogen Boom: A Future in the Making

By 2030, Mexico is poised to become a renewable energy powerhouse, with an impressive 13.8GW of clean energy projected to be online, including a significant boost of 3.5GW in that final year alone. Solar power is set to dominate, accounting for a massive 11.8GW — a staggering 85.5% of all planned renewable capacity. Most solar projects, ranging from 100-300MW (55% of solar projects), are expected to become operational within the next seven years, painting a bright future for the nation's energy mix. Wind power contributes 1.75GW, or approximately 12.5% of the planned capacity, with more projects slated for startup in 2029 than solar. Meanwhile, hydroelectric and geothermal sources provide a smaller contribution, accounting for less than 2% of the expansion, with 240MW and 25MW, respectively. The key players in this renewable race are Ikal, CFE, Solarig, and Tango Energy. Ikal stands out with its 2.8GW solar project, specifically designed to power a green hydrogen electrolyzer. From a regional perspective, Leon takes the lead in overall capacity, primarily due to its large-scale, exclusively solar projects, amassing an impressive 3.25GW. Meanwhile, Baja California has emerged as the undisputed leader in onshore wind capacity, with three projects contributing 1.13GW to the grid. Sonora and Campeche, though not leading in total capacity, are at the forefront in terms of the sheer number of projects (five each), diversifying the nation's clean energy portfolio.

Mexico's energy sector is seeing a surge in hydrogen investment, with a total of US$16.7 billion in projects tracked by EICDataStream. This pipeline begins with a US$330 million project in 2027, followed by three more in 2028 totaling US$2.7 billion, and another three in 2030 worth US$2.5 billion. The peak is expected in 2032 with two major projects representing an investment of US$11.25 billion. Leading the charge are visionary developers: Copenhagen Infrastructure Partners (CIP) is behind the US$10 billion Helax Istmo Green Hydrogen Hub, designed to be powered by a massive 3.7GW of wind and solar energy, to produce 900,000 tons of green ammonia per year for export markets. Not far behind, Aslan Energy Capital is making waves with its ANEM Green Hydrogen and Ammonia Project in Sonora, which aims for an even higher output of 1,200,000 tons of green ammonia annually and has already secured a significant off-take contract for 100,000 tons of hydrogen with California-based CalYan XGH, eyeing a 2028 startup. Meanwhile, Fermaca Networks is diversifying the clean energy portfolio with its Fermachem Urea and Blue Ammonia Project in Durango, a US$1 billion investment focused on producing 600,000 tons of urea. Beyond these major players, individual projects stand out: Ikal Solar's Ikal H2 Green Hydrogen Project in Mina, Nuevo Leon, boasts a 2.2GW electrolyzer capacity to produce approximately 124,000 tons of green hydrogen per year; CFE is developing Phase 3 of the Puerto Peñasco Solar Plant, a 300MW photovoltaic project in Sonora; and Sempra Energy is driving the Cimarrón Wind Farm, a 330MW project in Baja California. Another notable venture in Baja California is NH3 Baja's La Rumorosa Green Hydrogen Project, which will use 3 MW of electrolyzer capacity to produce approximately 375.6 tons of green hydrogen per year for export to California, signaling Mexico's growing role in cross-border clean energy supply chains.

Strategic Considerations and International Trade Dynamics

EICDataStream indicates US$132 billion in CAPEX for projects slated to begin operations by 2030. While O&G continues to attract most of the investment, accounting for 76% of this near-term CAPEX, the clean energy sector is a vast, largely untapped reservoir of opportunity. The incoming administration's stance, particularly its stated openness to private sector involvement within a framework of state control, could be the key to unlocking greater private investment across both conventional and renewable energy segments, charting a course for long-term growth and diversification. However, this ambitious future is intricately tied to the complexities of international trade and regulatory shifts. The USMCA agreement, in effect since July 2020, remains a bedrock of North American commerce, guaranteeing tariff-free access for a wide array of goods, provided they adhere to the agreement's stringent rules of origin. In April 2025, the US administration imposed a 25% tariff on goods from Mexico and Canada that did not follow USMCA provisions. While USMCA-compliant products remained tariff-free, non-compliant energy and potash products faced a reduced 10% tariff. This decision led to intense discussions, with Mexican President Sheinbaum emphasizing the importance of a respectful, bilateral relationship to navigate these trade challenges and support cross-border energy cooperation.

Mexico's energy sector is currently navigating a complex landscape that reasserts state control while also presenting specific, albeit limited, opportunities for international investment. Recent legislative reforms, including the new Electricity Sector Law (LESE) and Hydrocarbons Sector Law (LSH), have significantly increased state control. These changes prioritize state-owned companies like PEMEX and the Federal Electricity Commission (CFE), with CFE now mandated to control at least 54% of the national electricity grid. This shift also includes the dissolution of independent regulatory bodies like the CRE and CNH, merging their functions under a new, state-controlled National Energy Commission (CNE). This move effectively reverses the previous administration's liberalization policies, raising concerns about regulatory independence and increasing risk for private and foreign investments.

Despite this, opportunities for international investment still exist, primarily through strategic joint ventures and "mixed development contracts," which allow private firms to share costs, investments, and risks with state-owned entities. This opens the door for suppliers of equipment, technology, and services, particularly for large-scale projects such as natural gas liquefaction and electricity generation. With the nation's energy demand growing due to strong economic growth and nearshoring, the government recognizes the need for private sector involvement, ensuring continued opportunities for supply chain support across the energy value chain. To succeed, supply chain companies must adopt a strategic approach that involves relationship building, understanding the regulatory shift, focusing on niche ability in areas like advanced renewable energy, and navigating USMCA implications. By embracing these strategies, companies can capitalize on the vast opportunities within Mexico’s energy transformation.