Martin is vice president for energy and sustainability at the University of California, San Diego's Institute for American Studies and lives in Solana Beach. Wood is vice president for strategy and new initiatives at the Wilson Center in Washington, D.C., and will become president and CEO of the Pacific Council for International Policy in Los Angeles in July.
Mexico will elect a new president and parliament on Sunday. Current opinion polls show ruling party candidate Claudia Sheinbaum has a healthy lead over center-right rival Xochitl Galvez, who would become the country's first female head of state. Sheinbaum will face major challenges in the energy sector, with the state oil company in crisis and serious weaknesses in the power system that are hampering efforts to attract investment.
Before the 2012 election, we identified key energy challenges for the next administration. Unfortunately, many of those same challenges remain present today. Mexico’s oil production continues to decline and oil exports have collapsed, while imports of natural gas and refined products from the United States have soared over the same period. Despite promising energy reforms in 2013, the power sector continues to stagnate with underinvestment in both generation and transmission, resulting in far more frequent power outages. Thus, Mexico’s energy story has remained largely unchanged. The characters have changed, but the plot is easy to follow. Just as violence and crime remain the country’s existential problems, corruption is endemic, and poverty and inequality are chronic curses, energy policy remains stuck in a vision of the past, hindering efforts to promote both prosperity and certainty.
But there is hope. Geopolitical shifts, strategic competition with China, and proximity and integration with the United States position Mexico to benefit from nearshoring investments. However, Mexico can only maximize the benefits of nearshoring if the next president can ensure a stable energy supply, especially with regard to clean energy.
The outgoing administration severely limited opportunities for private investment in renewable energy generation and transmission and sought to centralize energy management in state-owned enterprise Pemex and power company CFE. The new administration must act quickly to fully seize the nearshoring wave and opportunities, which means developing a more coherent and resilient energy policy.
The lack of reliable, clean energy alternatives could be a deal-breaker for potential nearshoring companies: Both candidates have spoken about the need for more renewable generation, but investors are unlikely to rush to build new capacity and transmission lines unless new regulatory and permitting approaches are adopted.
Mexico's oil production in 2024 will be less than half what it was in 2004, despite the Lopez Obrador administration allocating huge budgets to the state oil company.
But what is most worrying is the stubbornness of Pemex, the world's most indebted company. As oil production has fallen sharply, the debt has skyrocketed. By May of this year, Pemex's debt stood at $101.5 billion. Even more worrying is the total debt. By last year, the total debt had risen to $233.4 billion. Vast volumes have been written analyzing how and why Pemex got to this situation. Simply put, Pemex is ossified and corrupt, and its capital expenditures have been squandered on useless projects such as embarrassingly expensive new refineries. The next president must embrace pragmatism in a big way when it comes to the oil sector.
The emphasis on oil production and new refineries needs to be replaced with considerations of efficiency and profitability. Mexico needs a smaller, leaner, more transparent Pemex that produces energy and benefits the state. We also need more players in the oil sector, so a renewed emphasis on partnering with the private sector would be very welcome. Finally, Pemex's operations are an environmental disaster. The flaring and venting of natural gas is a major contributor to climate change, and Pemex needs to be forced to follow through on its own goal of reducing emissions by 54 percent over the next six years.
We are not advocating for new laws or major constitutional changes; the legal framework already exists for the energy sector to thrive. Rather, we are calling on the new government to develop and implement a more rational and coherent strategic vision. Mexico's next president will best serve the country by addressing these fundamental challenges swiftly and effectively.
If not, in six or twelve years we may have to revisit this tragic wasted opportunity.
