Mexico’s Big Energy Nationalization Plans

Ever since coming to office in 2018, Mexican President Andrés Manuel López Obrador (AMLO) has been pushing for greater energy nationalization. AMLO cites over-greedy international energy companies, sectoral corruption, and the need for enhanced national energy security as the main reasons behind the scheme. However, nationalization comes at a cost. This movement is driving away foreign investment and limiting energy sector development to Mexican companies that lack the expertise and equipment to exploit certain resources – such as lithium.  

AMLO has been criticized for his push for the nationalization of Mexican energy, as various media sources highlight the archaic nature of the decision. Forbes wrote “Mexico Moves To Re-Nationalize Energy Markets – A Return To 1938?”, while the Washington Post published an article entitled “AMLO’s Oil Politics Reveal His Obsession with the Past”. Mexico’s energy sector was originally nationalized in 1938 before eventually allowing for greater levels of international investment under the Enrique Peña Nieto administration in 2014. 

The privatization of Mexican energy shifted reliance away from state-owned oil and gas company PEMEX, which had been declining for decades. This shift has helped to develop the country’s fossil fuel resources significantly. It also led to wide-scale job creation, improved energy transportation infrastructure, and led new oil and gas discoveries. However, AMLO’s 2021 Electric Power Industry Law effectively undid much of Peña Nieto’s attempt to attract foreign investment and boost the country’s energy development through privatization.  

Mexico’s populist president AMLO is adamant that nationalizing the country’s energy once again will help the country reduce its reliance on the U.S. and other Western powers while enhancing domestic energy security. In terms of Mexico’s massive crude resources – totaling 5.8 billion barrels of proven reserves in 2020 – AMLO has stated that Mexican oil does not belong to the government or the state but “to the people”. To this end, the Mexican government halted new private oil and gas exploration auctions, putting oil and gas operations back in the hands of PEMEX. 

New reforms also saw national regulators, such as the National Hydrocarbons Commission (CNH) and the Energy Regulatory Commission (CRE), which propped up the country’s energy industry for decades, be dissolved. The government also shut down several privately-owned fuel storage terminals last year, and has halted private deep-water operations. Many believe that PEMEX does not have the equipment required for deep-water drilling, meaning that this sector is effectively dead in the water without privatization. Understandably, these moves have been highly criticized.

But not all of ALMO’s ideas have been seen as so outlandish. The president makes a point when he compares the act of buying refined Mexican crude from the U.S. to selling oranges to foreign markets and buying their orange juice. Further, his massive push for investment in the country’s refining facilities will likely see a significant boost in Mexico’s refining capabilities. PEMEX’s flagship Dos Bocas refinery is now expected to cost $18 billion and is aimed at massively enhancing the country’s energy self-sufficiency. 

But while Mexico’s refining industry may benefit from nationalization, other sectors will likely suffer. The Electric Power Industry Law has already thrown the country’s renewable energy sector into turmoil, after focusing so heavily on the development of the fossil fuels industry. As the renewable energy sector is highly privatized – in a mainly corrupt manner, if we are to believe AMLO – Mexico’s regulatory agencies have focused on blocking renewable energy power plants from operating. Instead, they are favoring fossil fuel operations, according to several government officials, analysts, and energy executives. 

As well as failing to exploit Mexico’s vast solar and wind resources to their full potential, AMLO’s nationalization plan means that other clean energy resources may never be developed. This is due to the lack of national expertise and inexperience in the field. While Argentina, Bolivia, and Chile are developing the highly coveted ‘lithium triangle’, working hand-in-hand to effectively amplify their lithium resources during a time of extremely high demand, Mexico is failing to evolve its lithium industry. The Mexican senate approved the recent Mining Law for lithium, categorizing it as a “strategic mineral”. Lithium concessions can no longer be given to private companies to mine. 

But experts have doubts as to whether Mexico will establish a state lithium mining company any time soon, particularly as much of the country’s lithium is held within clay deposits, which makes it extremely expensive and difficult to mine. At a time when the global demand for lithium is higher than ever – thanks to the boom in the battery market – AMLO is turning its back on major investment potential. 

In addition to a great deal of public and media criticism over AMLO’s approach to energy, in July, the Biden Administration initiated a trade dispute against Mexico for giving preference to its energy firms. The dispute suggests that Mexico is breaking the USMCA trade agreement with the U.S. and Canada by giving priority to electricity produced by the national energy regulator – Comisión Federal de Electricidad, despite prices being higher than private American competitors, and by allowing PEMEX to circumvent certain pollution regulations, as well as for denying and delaying permits while also revoking licenses already granted to private energy firms. 

While AMLO insists that the nationalization of Mexico’s energy industry will bring greater energy security to the country and decrease its reliance on expensive energy imports, the move has been met with extreme criticism. And the recent trade dispute from the Biden Administration may bring further complications to the government’s energy choices by putting its trade relations in jeopardy.