Pietro D
Pitts
Hart Energy
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Mexico Energy Forum President Roberto Salinas León shared his thoughts with Oil and Gas Investor on a number of themes related to recent elections in Mexico, the direction Mexico’s next president could take on different policy fronts as they relate to the CFE, and Pemex. Salinas studied at Hillsdale College in Michigan from 1979 to 1983 and earned a Master of Arts and Ph.D. in philosophy from Purdue University in Indiana.

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Pietro Donatello Pitts, Oil and Gas Investor: If Claudia Sheinbaum Pardo continues with the ideas of Andrés Manuel López Obrador (AMLO) to strengthen CFE and Pemex and others, what opportunities are there then for U.S. investors interested in Mexico’s energy sector? Will there be opportunities in the upstream (E&P) or pipeline sector or renewables?

Roberto Salinas, president, Mexico Energy Forum: In truth, not many. The misguided nostalgia for returning Mexico to 1970s energy statism constitutes a misplaced understanding of “national sovereignty.” Pemex is de facto bankrupt, with over $105 billion in outstanding debt and another $37 billion in other liabilities—suppliers, taxes and “other costs.”

Moreover, production has declined from 1.8 MMbbl/d to 1.5 MMbbl/d. There is no possible way to reconcile this stubborn ideological adherence to state monopoly in energy with the need for greater investment that could materialize under the window of opportunity afforded by the nearshoring phenomenon. Pemex has absorbed over 1 billion pesos in taxpayer money to keep it afloat in the AMLO sexenio or six-year term. This is unsustainable.

CFE reflects a similar story. Mexico will not be able to keep up with overall demand without new private investment in production, transmission lines and distribution. Nearshoring opportunities will lose out to other investment regimes capable of supplying affordable and reliable electricity inputs. No reliable electricity? No Tesla, no Amazon, no new nearshoring investments. Perhaps even Mexico Pacific. Is this how political dinosaurs construe “national sovereignty” and self-sufficiency?

Sheinbaum will need to maneuver a U-turn on both these policy fronts. There is, in addition, tremendous opportunity in renewing rounds in the upstream sector and pipeline infrastructure, especially in the southeast region. Sheinbaum could rather swiftly revitalize the enormous interest that materialized in renewable energy investment prior to the destructive onslaught launched by the AMLO administration, particularly solar energy in states like Baja California, Chihuahua and Sonora. Moreover, it behooves Sheinbaum to adopt a more open and pragmatic stance in energy investment, especially in light of the forthcoming revision on USMCA in 2026.

PDP: Are there any problems related to pipelines that currently export U.S. gas to Mexico and how do you view future expansions to handle at least a doubling of gas exports if the Mexico LNG plants move forward and eventually come online?

RS: This is an issue of cost-benefit analysis, which the AMLO regime wantonly abandoned and the Sheinbaum era will hopefully reinstate. What if all the massive amounts of resources earmarked to the Maya Train had been invested instead in a pipeline project to facilitate transport of gas to the southeast region? Sheinbaum will need to think out of the box and neutralize the ideological radicals in the Morena party to capitalize on such badly needed infrastructure needs.

PDP: As China and other countries try to take advantage of the U.S. Inflation Reduction Act (IRA) and USMCA to get access to the U.S. and Canada markets via Mexico, what are the biggest headwinds China and other countries or companies face with that strategy? Is a lack of reliable energy at the top of the list? What about issues around water scarcity?

RS: The main obstacles surrounding all forms of nearshoring investment opportunity are: water scarcity, unreliable energy and electricity inputs, human capital development and availability, and rule of law. The latter is arguably at the top of the list, as organized crime has sought to infiltrate and profit from the advent of new investment projects linked to nearshoring. The presence of Chinese investment projects will also represent a serious issue for discussion in the renewal of USMCA, especially if Donald Trump wins.

PDP: Assuming a Trump victory in November, how do you see U.S.-Mexico trade issues evolving? What about under another Biden term?

RS: There is, paradoxically, a very good opportunity for Mexico if Trump wins, given the persistence of the U.S.-China “trade war.” Mexico is the obvious and natural ally to consolidate what is already the most competitive region in the world, namely, North America. Trump needs to abandon the useless and silly principle that interprets trade as a zero-sum game, or as an exercise in corporate bookkeeping, and insist instead on resolving disputes in energy and other matters, all that have remained unanswered under an increasingly (and highly disappointing) protectionist Biden administration.

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