Energy is set to be a sticky issue in the new Mexico-United States relationship under U.S. President-elect Joseph R. Biden Jr.
Moves by Mexican President Andrés Manuel López Obrador that favor public sector companies Comision Federal de Electricidad (CFE) and Petróleos Mexicanos (Pemex) over private sector entities have caused considerable concern to U.S. investors in Mexico over the past two years, resulting in threats of international arbitration and formal complaints.
According to the analyst team at political risk firm Eurasia Group, the most serious risk to bilateral ties is López Obrador’s energy policy, “which is generating growing criticism in the U.S. given efforts to favor state-owned companies Pemex and the CFE, while also targeting renewables.”
While López Obrador remains one of the few global leaders yet to congratulate the U.S. president-elect, “this is unlikely to affect bilateral ties, as both countries will adopt a pragmatic attitude, and López Obrador will prioritize maintaining good relations with the U.S.,” said the analyst team led by Daniel Kerner.
Analysts added that overall, relations are likely to generally improve under the Biden administration, and that López Obrador’s own experience with what he perceives are contested elections in his defeats in 2006 and 2012 are likely shaping his delay in congratulating the U.S. president-elect.
But energy remains problematic, and the strain would increase if López Obrador pushed to undo the changes made during the previous government that opened the energy sector to private participation. López Obrador has threatened he would push for a change after next year’s midterm elections if he deems not enough has been done to “rescue” Pemex and CFE.
“Risks would likely remain contained as long as López Obrador does not pursue a formal reversal of the 2014 energy opening or tries to cancel any existing contracts,” the analysts said. To date, López Obrador has been very clear that he would not touch existing contracts in the country.
“But pressure will be high and if he takes more decisive action in any of these fronts, Biden could challenge the López Obrador administration more seriously,” using provisions under the newly signed United States-Mexico-Canada-Agreement (USMCA). “López Obrador will remain sensitive to U.S. demands and could moderate somewhat, but his distrust of private participants, in particular foreign ones, will keep the risk of tensions high.”
Meanwhile, U.S. natural gas exports to Mexico via pipeline continue to increase.
So far in November, gas flows on the 2.6 Bcf/d Sur de Texas-Tuxpan subsea line are nearing 1.4 Bcf/d, a record high. The figure not only exceeds the October number by over 400 MMcf/d but also surpasses the prior 10-month average by more than 500 MMcf/d, according to Genscape Inc.
There is still substantial room for growth on this pipeline, especially given new infrastructure in the southeast of Mexico connecting the national Sistrangas pipeline system with the gas-starved Yucatán Peninsula, Genscape analyst Ricardo Falcon said Wednesday.
While Mexico has become increasingly dependent on gas imports from the United States, cross-border gas flows are just as important to producers in the United States in order to balance the market, NAmerico Energy Holdings LLC (NEH) President Jeff Welch said earlier this week.
Mexico is currently the world’s No. 8 largest gas market, Welch said, noting that its gas needs have grown steadily while domestic supply has dropped.
Analysts also suggest president-elect Biden’s tenure would be slow to push for legislation that could impact natural gas production in the United States.
“The fact that Republicans appear to have retained Senate control will make it difficult if not impossible” for Biden “to enact his major climate reforms,” said Raymond James energy analysts led by Pavel Molchanov this week.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 2577-9966 | ISSN © 1532-1266 |