Supporters of President Andrés Manuel López Obrador say that he has a better energy policy than previous Mexican governments, particularly in two aspects: there is less corruption and a better understanding of the concept of energy security.
Octavio Romero, CEO of state-run oil company Petróleos Mexicanos (Pemex), gave an example of what he calls past pillaging and present-day success. He said that, under his tenure, Pemex has spent MXN $80 billion on developing new oilfields, particularly in shallow water, and has achieved production of 186,000 barrels per day. This contrasts with the governments of former presidents Felipe Calderón and Enrique Peña Nieto, which spent three times that much on deepwater drilling and never produced a single barrel. And he is absolutely right. Though, the truth be told, Pemex did not conclude work in deep water at an advanced stage, which the current government is not interested in continuing.
But does López Obrador´s government really do things better? If we compare apples to apples, we would see that Calderón and Peña Nieto had a better performance than the current administration in developing new shallow-water fields, achieving an additional 800,000 barrels per day. This, however, went unnoticed, because, simultaneously, two million barrels per day were lost through the collapse of the supergiant Cantarell field.
But why compare to those who failed? If the current team has a better understanding and there is no corruption, why are results so mediocre at Pemex and at state-run power company CFE? Total crude oil production has not increased, nor has output at refineries. The rehabilitation of refineries, and also construction of a new refinery at Dos Bocas, are behind schedule.
Much the same is true at Mexico’s Federal Electricity Commission (CFE). For a while now, it has been promising to build six new gas-fired, combined-cycle power plants with almost US $3 billion in investments, in addition to 18 transmission projects. But in fact, all they do is politicking, quarreling and showing hostility to private capital. The company, run by Manuel Bartlett, talks a lot about projects, but does not get them done.
The plan for combined-cycle plants has got bogged down. Contractors look at it with distrust due to unrealistic construction schedules, to unacceptable conditions regarding guarantees and penalizations, and to the legal controversy surrounding the electricity reform the President wishes to implement. The way they are going, this will be the first six-year government term in which the CFE will not complete construction on any new power plants or any new gas pipelines.
This reform, if it moves ahead, far from strengthening the state-run firm, will increase the cost of the basic electricity service, hurting the CFE –which will lose industrial clients– and public finances, forcing the government to increase subsidies in order not to raise electricity bills for the people. Higher bills will hit big industries and small businesses –which do not get subsidized, yet do provide a lot of jobs–, and will cause more pollution from burning fuel oil in CFE power plants.
The current government discourages investments that were made in good faith and fails to pay suppliers. It has caused much of energy business to be taken to court. Contrary to legal and best practices, there is less transparency and more government contracts are awarded directly, without bids. With higher oil prices, Pemex could achieve great synergies with private partners and allies, but it rejects this option outright.
It is wrong to think that curbing private investment leads to greater energy security. It is also wrong to oppose the transition to clean energy, to undo the electricity market and put obstacles in the way of crossborder fuel trade. In a global market with abundant sources of energy, supplies are only really at risk in cases of force majeure, such as when natural gas from Texas was cut off last February because of extreme cold weather. But this can best be resolved, not by purchasing or building refinery assets, but by promoting diversified energy projects within the country and through supply agreements in open markets.
With more private investment, many more projects, better oriented to the Mexico’s needs, could move forward. But superficial patriotic ideology blinds the government to that opportunity. Meanwhile, Pemex and CFE leave much to desire with regard to their results.