Mexico Energy Monitor

Market Observers Look Into Sheinbaum’s Future Presidency and its Potential Impact on PEMEX

  • Rating agency Moody’s expects that the new government of Claudia Sheinbaum will not change significantly PEMEX’s business model nor the government’s financial support for the oil company, according to a June 3rd report. Sheinbaum’s administration will maintain a commitment to the so called “energy sovereignty”, the report added.
  • One of Sheinbaum’s main challenges soon after taking office will be PEMEX, the most indebted global crude oil major, with debt commitments of around $100 billion, and which has only managed to financially get by with cash injections from the Federal government. Meanwhile, the company’s operating performance continues to deteriorate, despite high oil prices, mainly due to rising losses in the refinery business.
  • Pemex could become a net drain on federal finances and negatively impact further Mexico’s sovereign debt ratings if continued federal budget support is needed, according to analysts at the major US credit rating agencies Fitch and S&P.
  • The financial support so far has mostly been used to cover debt obligations, but not expansions or overhauls to make the company fit for the future. Equally, PEMEX’s debts with its own suppliers, smaller companies in Mexico who create thousands of jobs, have been widely reported, and only partially addressed by the Andres Manuel Lopez Obrador’s (AMLO) administration.
  • PEMEX’s aging facilities are also in the spotlight. At the start of his term in 2018, the president said he wanted PEMEX to increase its output to somewhere above 2 million barrels/day. In 2023, on average, it produced 1.875 million barrels/day, which was nonetheless a 5% increase compared with 2022. PEMEX never got there and, given the difficulty to do so, it stopped publishing the 2 million barrel/day target at some point last year.
  • To surpass the 2 million barrel/day target, PEMEX needs to heavily invest in its fields and facilities, analysts at Fitch said in April. While other state-owned as well as private oil majors are speeding up their investments in other energies to allow them a future past-oil, Pemex remains a quintessential crude producer and one who, on top of it all, operates aging facilities. That adds another financial drag on the company as old facilities require recurrent maintenance and, moreover, too often have caused fatal accidents.

Mexico’s Petrochemical Sector, Hydro Stocks Impacted by Drought Conditions

  • Petrochemicals producers in the production hub of Altamira, in the Mexican state of Tamaulipas, keep declaring force majeure as a severe drought halved water supplies to industrial players. The drought affecting Tamaulipas has its epicenter in the south of the state, where Altamira is located, and recent minimal rainfall has not helped much to fill up the state’s water reservoirs.
  • The drought, which the state government says has lasted already eight years, has reached a critical point in 2024, prompting authorities to arrange water deliveries in tanker trucks from other state municipalities as well as other Mexican states. The crisis could end up hitting US petrochemicals, as the state is a key supplier to that market. Earlier this week, the company M&G Polimeros declared force majeure on one of its two polyethylene terephthalate (PET) lines from Altamira.
  • The governor of Tamaulipas, Americo Villarreal, ordered this week to send tanker trucks to the south of the state from other municipalities not affected as harshly by the drought, as well as from other Mexican states. The trucks will not sort out the dire situation at industrial parks, however, as the water will be deployed to households, which are also suffering water restrictions.
  • Mexico was hit by blackouts in recent weeks due to a spike in power demand amid high temperatures. Power generation also dropped unexpectedly due to other reasons including lower output from hydroelectric dams, which have been affected by drought.
  • CFE’s hydro power generation has declined significantly in recent months. The main hydroelectric plants in Mexico are located in states facing drought challenges, including Jalisco and Michoacán. Installed capacity within these two states represents roughly 2,300 MW and could be at risk going forward.
  • Additionally, given that Mexican authorities are obliged to define water limits for the use of electricity generation based on availability (with irrigation and cities’ supply being the priority), hydroelectric plants located in states dependent on agriculture, such as Michoacán, face higher supply risks.

Leading US Environmental Group Targets Mexico Liquefaction Projects

  • The US-based legal environmental group Earthjustice sent a letter to the US Department of Energy (DOE) urging the US government to examine the “distinct harms associated with exporting US natural gas through Mexico ”, according to a 5 June DOE filing. Earthjustice is targeting Mexico’s liquefaction projects in the context of the announced decision to pause approval of pending US LNG projects on concerns over carbon emissions.
  • Earthjustice argued that Mexico’s issues regarding access to information are another matter of concern. “Information on proposed LNG projects is similarly difficult to access. The few publicly available databases require specific docket codes to access (which are often only available to the project promotor) and are often lacking technical details, which are either redacted or contained in multiple annexes that are not publicly accessible,” the letter concluded.
  • The Joe Biden administration is currently reviewing its approval standards for LNG export projects. However, North American LNG production will already double between now and 2030 to over 180mtpa, with the big majority from the US but with Mexican export projects representing a significant part of the equation.


SENER Releases Latest PRODESEN

Mexico’s energy ministry SENER released on 31 May the latest power grid planning document PRODESEN 2024-2038. The document anticipates an accelerated growth in power demand, an increase in nuclear energy generation as well as distributed generation. SENER said that power grid investment will mostly focus transmission and distribution projects in the southeastern and northern parts of Mexico. The document also projects a significant rise in electric car sales in the country.

SENER estimates that more than 160 projects it instructed CFE Transmission to build will start operations before 2030. It also expects 114 projects it instructed CFE Distribution to build will start operations by the same year. SENER expects to advance 11 key projects of expansion in the transmission grid, which will represent more than 1,293km of new transmission lines across the country. It says these transmission and distribution projects are currently in different phases of authorization, development and construction.

Public utility CFE has acknowledged in the past that it has made slow progress on infrastructure improvements outlined in previous SENER’s grid planning document PRODESEN. The utility also cancelled important transmission and other projects while advancing by less than 10% on key projects it was instructed to carry out by the 2017, 2018 and 2019 PRODESENs.

The PRODESEN for 2024-2038 estimates electricity demand growth of 2.9% annually, a figure similar to estimates in prior PRODESEN. SENER touted 24.3% generation from renewable sources at the end of 2023. Most of the renewable projects that have come into service in recent years were awarded during the prior federal administration.

Leading non-profits and think tanks in Mexico, such as the Mexico Institute for Competitiveness (IMCO), criticized Mexico’s failure to generate at least 35% of its energy from renewables and the lack of a clear roadmap to achieve this goal in the PRODESEN.

In the past, IMCO has criticized SENER’s intentions to achieve the country’s climate goals through regulatory changes instead of strengthening a prominent role for renewable generation in Mexico’s energy mix. Mexican authorities have been using a new methodology, which considers the steam-generated energy in combined cycle plants as clean energy.