Mexico
Q&A

Mexico's energy sector has positive first impression of Sheinbaum but awaits key legislation

Bnamericas
Mexico's energy sector has positive first impression of Sheinbaum but awaits key legislation

After a decade of upheaval in the Mexican energy sector, hopes are rising for a reset under the presidency of Claudia Sheinbaum.

A former climate scientist, Sheinbaum has set ambitious goals to expand the country’s renewable energy capacity. She has also pledged to grow downstream industries such as petrochemicals and fertilizers. To meet her goals, Sheinbaum has indicated that she will be much more open to private investment than her predecessor and fellow Morena party member Andrés Manuel López Obrador.

To discuss the outlook for the country's energy industry, BNamericas caught up with Juan Acra, the president of Comener, the chamber representing the interests of Mexico’s private-sector energy companies.

BNamericas: Comener was founded during the liberal energy reforms of former president Enrique Peña Nieto. How has the Mexican energy sector fared since then?

Acra: We were born with the energy reforms. I think the reforms didn’t do enough on the social element. We had to make civil society understand that it was going to take time to achieve a reduction in electricity rates and gasoline and diesel prices. The reform was used as a political instrument saying that everything would be reduced immediately. That was where we failed.

In the six-year administration that came to power in 2018 [López Obrador’s], there was a different vision, prioritizing the participation of state-owned companies. Now under President Claudia Sheinbaum, the national strategy for the hydrocarbon and natural gas sector and the national electricity plan have already been published. Private participation is allowed in both cases. What we’ll have to see before April is what the contract models will be.

BNamericas: What do private companies need to see before investing in the Mexican energy sector?

Acra: In order for these investments to be possible, there must be legal certainty. It’s clear that complementary investments can be made, but private companies want to be able to compete on a level playing field.

BNamericas: In which parts of the energy sector do you see most space for private investment?

Acra: We need a robust, reliable and secure electrical system. Demand of approximately 65,000MW is expected by 2030, with additional demand of 9,500MW. That is where the private sector will be able to participate up to a 46% level.

If each megawatt represents an investment of US$1mn, we’re talking about US$10bn. We have to work together so that we can meet the demand required for the coming years.

Investment will also be needed in the transmission and distribution area. Again, we’ll have to look at the contract models for legal certainty so that the investments can arrive.

BNamericas: How can the energy sector help Mexico make the most of the nearshoring opportunity? 

Acra: Companies that want to come to the country need to have certainty about the supply of energy in the short, medium and long term. Otherwise, everything indicates that many of these investments will go to Vietnam.

There is good news from the government that private participation will be encouraged for self-consumption up to 20MW to meet the needs of new industrial parks. This will help a lot.

Comener is promoting the creation of state development and sustainability agencies in different states; through these vehicles, state governments can identify at a local level strategic projects in electricity generation, transmission and distribution, as well as in the storage and transportation of natural gas.

BNamericas: How do you think new investments in natural gas can help Mexico grow its downstream industries?

Acra: Natural gas is a fundamental input for the Mexican economy and for the development of industrial activities. 

There is a great opportunity with nearshoring because of our access to competitive raw materials and reserves, but the gas pipeline network is insufficient to transport natural gas to all regions of the country. We need to expand access to increase the competitiveness of the most underdeveloped regions. We also need gas to accelerate the energy transition. Renewable energies today require this backup.

Like the United States, Mexico has unconventional deposits that we should exploit. We’re in favor of a diversified energy matrix. Having a diversified matrix will help us speed up the pace of the energy transition.

BNamericas: What are your first impressions of Claudia Sheinbaum's government?

Acra: We have a positive impression when it comes to energy. The president has been in office for a couple of months. She is a specialist, she has a doctorate in energy and she carried out a successful solar program in Mexico City when she was head of government. She is clearly in favor of looking after the environment and of policymaking that can help Mexico comply with the Paris Agreement on reducing greenhouse gas emissions.

So we have a positive view. What we’re going to have to see in the next few months and next year is the secondary legislation, the contract models and the financial vehicles for the private sector to be able to participate. That is the pending issue that has not yet been defined.

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