Mexico’s New President Promises More Nationalistic Energy Approach

Newly elected Mexican president Andres Manuel Lopez Obrador has promised to look hard at how the country has fared in opening its energy sector to international players, but outside observers believe foreign investment will remain.

Lopez Obrador, the winning candidate from the left-leaning Morena party—receiving a clear mandate for change with more than 50 percent of the vote—now must decide how to implement a platform that emphasizes Mexico’s sovereignty and nationalism, especially in the energy sector.

Oil exploration and production in particular have been a focal point. Lopez Obrador has vowed broad changes, including a review of all recently awarded oil contracts and participation in international energy organizations, such as OPEC.

These campaign promises focused on ensuring a continued primary role for Mexico’s national oil company, Petroleos Mexicanos, or Pemex, while pulling back from future international oil contracts.

“The review process in particular would effectively halt all new auctions of oil and gas assets,” wrote Moody’s Investors Service Inc. in a July 2 research note. “All of these measures would hurt Pemex and the Mexican oil and gas industry in both the short and long term.”

Yet many industry observers believe these goals will be tempered by Lopez Obrador’s need for a vibrant oil and gas sector, which currently provides roughly a third of the country’s budget.

“To deliver on his campaign promises, Lopez Obrador will need an energy sector that generates revenue during his six-year term,” said Ixchel Castro, the manager of Latin America oil and refining markets research with Wood Mackenzie, in a written statement. “This administration stands to reap the rewards of the reform—increased production, private investment and job creation—but this will require strong backing from both the incoming administration and government coalition support.”

Mexico has held several recent onshore and offshore oil and gas auctions that have resulted in awards for major oil companies, including Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp., with a promised $100 billion investment in Mexico.