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The key events to decipher AMLO's energy policy

Bnamericas
The key events to decipher AMLO's energy policy

These are the key events that will define the new Mexican government's relations with the energy sector following the inauguration of Andrés Manuel López Obrador (known as AMLO, in photo) on Saturday.

The 4th long-term power auction

Bids are due December 4 for the auction that has attracted 22 pre-qualified companies. It will be the first sign of continuity of energy reform policy under the new government. Results will be made public before December 18, according to the schedule. A successful auction with low prices would be a fortuitous beginning for relations between the López Obrador government and generation companies going into the holidays.

Presentation of national refining program

López Obrador's refining program will be presented in the state of Tabasco on December 9. The program will detail how he intends to modernize Mexico's refining sector. Financial analysts have been critical of the allocation of resources to refining due to the country's proximity to the United States, while EPC companies such as McDermott have stated that they see an opportunity in the construction of a new refinery proposed by López Obrador in his home state of Tabasco, which will also house the newly decentralized energy ministry. The refining program will be an opportunity for EPC companies and could have a major impact on the medium-term structure of Mexico's downstream sector.

The US$8.6bn Dos Bocas refinery is looking to be the flagship project of the new administration and a test of López Obrador's capacity to get things done. Previous governments have been good at announcing projects and bad at finishing them. López Obrador will try to hit the ground running on the Dos Bocas refinery and haste as well as second-guessing will likely abound. 

Rounds 3.2, 3.3 and seven Pemex farm-outs

These bidding rounds in which 52 areas will be licensed are scheduled for February 14, 2019. Their successful completion would lay to rest one of the most pressing areas of preoccupation within the upstream sector, namely continuity of oil and gas bidding rounds. Failure of these licensing rounds will surely sour relations between the government and the industry, leaving López Obrador highly dependent on federal oil company Pemex's ability to modernize the sector. 

At the moment 20 companies have paid the inscription fee for round 3.2, which comprises 37 onshore areas on Mexico's Gulf coast. Six companies have paid the inscription fee for round 3.3, which involves nine onshore conventional and unconventional areas in the Burgos basin. With the addition of Vista Oil and China Offshore Oil in the last week, currently 12 companies have paid the inscription fee to participate in the Pemex farm-out auction.

These bidding rounds will be organized under a new president of Mexico's hydrocarbons commission with the resignation of current heead Juan Carlos Zepeda, who will be replaced by a López Obrador nominee. The transition will be closely watched.

Onshore unconventional round 3.3 involves fracking, something which López Obrador has said will not occur during his tenure and could well be politically complicated for the new president. Closing the door on fracking means closing the door on 53% of Mexico's 3P natural gas reserves. However, allowing fracking would almost certainly be seen by his base as caving in to the extractive industries and breaking campaign promises. 

The seven Pemex farm-outs will also be a key test for the model after recent failures to farm out the Nobilis Maximino and Ayin Batsil blocks. Given López Obrador signals that bidding rounds for finding Pemex partners may be discontinued, this round could be a last opportunity for companies seeking to work with the NOC on the basis of an impartial process.

Gasoline pricing

Every Friday Mexico's treasury determines the level of value added tax on gasoline. The rate set on the first Friday of December will be an indicator of whether the government will be susceptible to intervening in this politically sensitive area. 

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