López Obrador: The First Year

Tue, 01/21/2020 - 11:35

A permanent fixture of Mexican presidential politics for over a decade before his victory in 2018, President López Obrador was no stranger to the oil and gas industry when he was elected. He had publicly rejected former President Felipe Calderón’s 2008 Energy Reform and he extensively campaigned against former President Enrique Peña Nieto’s 2013 Energy Reform. Importantly, he has continuously spoken in support of public ownership of Mexico’s oil and gas resources, framing new contracting models and bidding rounds as an attempt to sabotage public ownership through the intervention of foreign private capital.

The president's closeness to the issues of the oil and gas sector can be understood in biographical terms. On one hand, as a native of Macuspana, Tabasco, it can be presumed that he witnessed the pivotal role that the oil and gas industry has played in that state’s economy, politics and society. On the other hand, as a politician who began his career in the 1970s, he had a unique first-hand experience of a tumultuous time in Mexico’s history when its national politics and public administration were greatly impacted by the combination of massive oil and gas discoveries, such as Cantarell, and the international circumstances that made these discoveries enormously profitable for the Mexican government, such as the OPEC embargo and its corresponding oil price surge.

Whatever their origin, López Obrador’s views generated uncertainty in the sector as soon as it became clear that his position at the top of the 2018 presidential election polls was decisive. However, during the campaign, he began to tone down his rhetoric, presenting a more moderate stance. For example, rumors that López Obrador wanted to cancel all licensing contracts were quickly rebuffed by his campaign with the assurance that he would respect such contracts, and that he was merely interested in revising them so as to avoid a “second Odebrecht” and more cases of corruption.

At the time, this shift in tone and priorities made a great deal of political sense. As his significant polling lead extended into election day, Lopez Obrador’s campaign promises became less focused on ideological goals and more focused on pragmatic socioeconomic objectives in order to sway major private-sector figures into supporting his agenda. It also made economic sense: the achievements of private operators in the Mexican oil and gas industry by 2018 were tangible and crucial contributions to the sector’s health.

In the case of the oil and gas sector, López Obrador’s socioeconomic pragmatism meant establishing the benchmark that has defined his policy agenda in this industry and perhaps also in a wider economic sense: getting production levels back up by centralizing PEMEX. This objective was framed by the larger purpose of achieving and supporting what he called “sovereignty,” expressed in practical terms by the self-sufficiency that ending crude and fuel imports would represent. During the campaign, López Obrador advocated the construction of the Dos Bocas refinery, both as part of a reactivation of Mexico’s refining infrastructure and also as another attempt, together with the Maya train, to bring about economic growth in the country’s southeastern states at a rate comparable with that of Mexico’s more economically developed northern states.

After López Obrador’s electoral victory and all the corresponding market reactions, 2018 ended with events that discouraged the private sector: the cancelation of the Texcoco airport and the temporary suspension of scheduled CNH bidding rounds. The latter event was misreported as the end of all bidding rounds, a notion that has now, a year later, been widely refuted by members of the president’s party and executive appointees to relevant federal institutions. While the scheduled bidding rounds did not take place, this has been interpreted by the administration as extra time to take stock of the nation’s oil and gas portfolio. Its goal is to determine the exact distribution of resource assignments between PEMEX and private operators in future bidding rounds.

The administration has also respected contracts with private operators. Previously-awarded blocks have continued their development without interference from the federal government, and have, in fact, enjoyed significant successes throughout 2019. However, López Obrador’s approach to PEMEX is also clear. This is evidenced by the streamlined contracting process for the construction of the Dos Bocas refinery, CNH’s approval of several “strategic” PEMEX field development and drilling plans, the NOC’s new business plan and the fact that the Ministry of Energy handed over its Round Zero blocks to the company. President López Obrador is taking care of PEMEX not only as the centerpiece of his vision for the Mexican oil and gas industry, but as an essential platform for his fiscal and socioeconomic development targets.