'2025 has all the makings of a pivotal year': Mexico's energy future hanging in the balance?

As President Claudia Sheinbaum unveils wide-ranging reforms to Mexico's energy sector, hopes are rising of a fundamental reset that could help the country take full advantage of its energy resources after decades of underinvestment.

To discuss the future of Mexico's energy industry, BNamericas conducted an in-depth e-mail interview with Chris Sladen, a leading figure in the sector in Mexico and beyond.

Sladen is an advocate for better energy solutions than the ones we have used so far. He is a founder of Reconnoitre Energies, offering advice and guidance on energy investments. He is a non-resident fellow at the Institute of Americas where he focuses on global energy trends and lower carbon energy. 

Sladen has a career of over 44 years in the energy sector, initially hydrocarbons and now also renewables. During this time, he has worked in more than 40 countries and lived in Mexico (2001-18), Russia, Vietnam, Mongolia, China and the UK. Whilst living in Mexico, Sladen was with BP, including as country head for Mexico, Peru and Chile.

He has a PhD in geoscience from the University of Reading, and a BSc from the University of Southampton. He has published extensively over five decades, recently completing a series of 50 essays known as ‘Energy Matters’ drawing upon his real-life experiences to explain major energy challenges. His latest series, ‘Energy Unwrapped’, attempts to explain the interplay between geopolitics, supply and demand, and geoscience.

Sladen's contributions to energy and education have been recognized by the UK government with both an MBE and CBE, and the Aztec Eagle from the Mexican government – the first foreigner in the energy sector to receive this award.

BNamericas: What is your assessment of Claudia Sheinbaum’s energy policies after her first 100+ days in office?

Sladen: The first thing to say is that Mexico’s President Sheinbaum won a very clear mandate to govern and make policy changes; recently so too did President Trump in the USA.

Both are deeply tuned in to why people voted for them, what their hopes and dreams are, and both want to put their country first. For Sheinbaum, her mantra is 'Let's Keep Making History' and for Trump it is 'Make America Great Again'. Both are very knowledgeable about energy matters and see their energy sector as a priority for wealth creation and driver of the economy. 

Secondly, a process of profound change is underway; I guarantee things will change from previous years. The whole region – Mexico, USA, Canada, Greenland – is headed for something different.

In coming months, I hope that the dialogue on energy matters between the teams is characterized by good listening, not just making demands and imposing tit-for-tat tariffs. In my experience, good negotiators are very careful listeners. Energy businesses crave certainty, so the recent changes to the judiciary and diminished authority of the main energy regulators in Mexico is of great concern to investors and market participants. When policies and regulations keep changing, and the vision for development of the energy sector keeps changing, it weakens Mexico's attractiveness and the country risk increases.

Thirdly, I think it is very important to understand the various impacts for Mexico from drill-baby-drill, any energy tariffs that might be imposed, any future easing of Russian sanctions (for example, would Europe restart large purchases of Russian oil products and pipeline gas?), also the pressures and direction of OPEC+ and Chinese economic performance plus its switch to renewable energies. Each of these would impact Mexico's energy sector to varying degrees.

Fourthly, the correlation between low energy prices leading to increased economic activity and higher GDP is well known. I think many countries, the USA, across Europe, in the UK and China, to mention a few, would prefer lower energy prices as a stimulus for low growth or stagnation.

In the case of Mexico, lower energy prices could ensure nearshoring opportunities are not lost, infrastructure projects such as industrial parks remain attractive, transport costs come down and hopefully also lower electricity prices, which would benefit both industry and all Mexican households.

Lastly, I expect there to be lots of initiatives continued during the next two years by private companies, trade associations and embassies seeking to engage in dialogue and advocacy with Mexico’s ministries, regulators and state-owned energy companies and system operators. And of course, with the president – if she has time to spend on this. Dialogue and collaboration are always the best way to build a more competitive and sustainable sector.

BNamericas: What can the government do to reverse the sharp decrease in Mexican oil production and attract more investment to the upstream?

Sladen: Oil will remain fundamental to Mexico's economy. The big picture is 20 years of declining production with a peak of 3.4Mb/d in 2004, now a distant memory. Today's production is around 1.5Mb/d with a self-imposed cap of 1.8Mb/d. I don't see the cap being breached; it would require massive investment to reverse the trend. The long decline has been financially offset partly by generally higher prices in the last decade, by price hedging and adjustments in fiscal terms. Even so, Mexico never came close to AMLO's initial target to restore oil production to 2.4-2.6Mb/d.

Mexico's E&P sector over the last 25 years is cumulatively underinvested by US$100bn+ by my calculations. Time and again, the need for both public and private large-scale E&P investment to restore production and reserves, focus on producing lower carbon barrels and advance capabilities, has been postponed or sidestepped. Managing decline, and reversing it, is definitely the hardest part of running an oil business, especially if there is little investment for near-field additions, enhanced oil recovery, making new discoveries and developing new skills.

The scale of past underinvestment is too large to simply recover in a year or two; it would take decades. To attract investment in oil projects, there needs to be recognition that co-investment – private and public – is probably the only route to achieve the large capital needed. This would rebalance state-led and private sector investment. Restoring bid rounds is the obvious solution but may be unpalatable.

Instead, a focus on JVs with [federal oil firm] Pemex may be a solution, as well as Pemex issuing large-scale risk-service contracts and farm-outs, or maybe fee-per-barrel contracts. A combination could achieve a fundamental reset in investment levels.

BNamericas: What do you think the future holds for natural gas?

Sladen: As a priority, Mexico, in my view, should get clarity and take multiple actions on the future of natural gas. Gas consumption keeps growing and growing, now reaching over 9Bf³/d. In 1965, consumption was under 1Bf³/d. Since 2000, growth has tripled from 3Bf³/d as new pipeline links brought US gas, coupled with ready availability due to the US shale gas boom. Natural gas imports by cross-border pipeline have increased steadily to around 6.5Bf³/d today, some days it is 7Bf³/d or higher. This costs around US$8bn per year at current prices. These are very substantial volumes, around 70% of consumption.

The fundamental problem with cross-border gas pipelines (and also electric power cables, and internet cables used for trading) is that they can be switched off! Such things do happen. For example, when countries fall out with each other and the pipelines are shut down (Russia-Europe 2022). Or when there are operating problems due to weather (Texas 2021). Or subsea gas lines are damaged (Finland 2023) or power and internet cables are cut by ships (Baltic Sea 2024 and 2025). Pipeline breakages can also occur due to earthquakes (Japan 2011, Turkey 2023). These examples tell us that resilience through diversity is essential.

Mexico's own domestic gas production peaked 2010-15 at around 5Bf³/d and has now declined to around 3.7Bf³/d. Much of this production is self-consumed by Pemex, leaving Mexican customers heavily reliant on imports. Significant domestic gas (around 10%) continues to be vented or flared, 0.3-0.5Bf³/d, destroying potential value (around US$0.5bn per year at current prices) whilst adding long-term environmental damage. I would cease all venting and flaring, except for emergency situations.

Liquefied natural gas (LNG) should be a key part of the priority too. Having developed LNG import and regasification capacity, which is good for energy security, the emphasis now however is on projects that import piped US gas and then liquefy and re-export LNG from Mexican terminals on both the east coast and west coast into the Atlantic and Pacific markets.

Availability of US gas to export to Mexico might come under pressure if there are increased LNG exports directly from the US to other global markets, particularly to Europe, growing demand from US consumers and a demand surge expected from large AI datacenters being built in the US. Large LNG export projects in Mexico face similar supply risks.

One opportunity for Mexico is to change its position on domestic natural gas production and reduce energy supply security risk. If Mexico relaxed its ban on fracking and pursued domestic unconventional shale gas and tight gas in the north, this could help balance the risks and lower its daily gas import bill. Obviously, this should be done carefully, selectively, not impacting agriculture or water needed by population centers. Otherwise, it seems a 'no-brainer' to me; why not use your own natural resources instead of importing and paying for someone else's?

BNamericas: What will it take for international oil and gas operators to come back to Mexico?

Sladen: It is important to recognize that the contracts from previous bid rounds have been honored and executed correctly. There have been both successful discoveries, appraisal, development and production. Of course, some areas have disappointed; it is not unusual in E&P; it is a risk business in which failed wells are common when the key subsurface geological components are not aligned. Many companies left Mexico following failed exploration because the opportunity for new bid rounds to replenish or grow their portfolios had dried up. Even so, they continue to maintain 'a watching brief' in anticipation of changes, or potential M&A activity.

If bid rounds were resumed, with terms and conditions similar to before, I sense both international and Mexican operators would return and bid. There remain vast areas of potential both onshore and offshore yet to be explored. Regarding international operators, it is essential to understand that their decisions are based on the quality of their global portfolio. If Mexico offers quality opportunities with competitive contract terms, that are attractive in a global context, of course companies will return. 

BNamericas: What can Sheinbaum do to accelerate the energy transition and make the most of Mexico’s renewable energy potential?

Sladen: First, let me say there are many kinds of energy transition, often varying depending on a country's natural resources and wealth, people's priorities and also based around the vision of its leaders, and government policy. My own career has been based around "tell me what it is that you want, and I will go and make it happen." I was then given the freedom to go and try, obviously working within certain boundaries, showing respect and ethics, and working with great colleagues.

It sounds very simplistic, but my experience is that this approach works. To generate a transition, give people clear instructions and the freedom to go and do it. There will be failures; however, the quicker those failures occur, the sooner the best solutions are formulated.

The overwhelmingly positive thing regarding energy in Mexico is that the naturally occurring resource base is gigantic – oil, natural gas, solar, geothermal, wind, biomass, waves – and probably lithium too. It bodes well for the future. Combine this with direct access to the Atlantic and Pacific oceans and a talented workforce, it offers a winning combination. The central issue for Sheinbaum is how to maximize the value of its resources responsibly, guarantee energy security and affordable prices, decarbonizing and limiting environmental damage, whilst optimizing long-term resource use for the benefits of the people?

My message to Mexico would be to call upon all its energy potential. Diversity of supply, energy storage options, and network resilience are essential. Ideally, there is power generation and a grid that is fit for a low carbon future; grid investment is essential, be it public and/or private. Wind (both offshore and onshore) and solar with utility-scale battery storage (BESS) to aid grid management are relatively cheap and can be deployed quickly. Investing in natural gas storage, fuels storage, as well as geothermal, hydro, pumped hydro storage, green hydrogen, blue hydrogen with CCS, and nuclear, creates resilience. Consumers generally care more about having cheap plentiful energy than cutting emissions; this needs to be factored-in too.

Geothermal in Mexico has enormous potential, use of hot springs dates back to pre-Hispanic times. Globally, Mexico is the seventh largest for installed geothermal power (around 1GW), but it provides only about 1% of Mexico’s current power. However, the resource potential is around 40GW! Hot water, steam and brines are available at hundreds of hydrothermal sites, whilst 48 recently active volcanoes that are part of the Pacific Ring of Fire, all signify great potential.

The first geothermal power dates to 1959, with today over 650 wells drilled, with wellhead temperatures usually >150^oC. Cerro Prieto in Baja California (280-350^oC, 720MW) and Los Azufres in Michoacan (240-280^oC, 188MW) are the largest operating plants. However, there has been little investment in the last decade, despite technology advances bringing costs down, making it cost competitive with CCGT power. In addition, there are around 34,000 oil and gas wells (32,000 onshore, 2,000 offshore) that could be retrofitted creating 10-20GW of further heat and power potential.

Elsewhere, shallow geothermal is available everywhere for heating and cooling using ground source heat pumps. Geothermal is largely overlooked as a source of low carbon 24/7 baseload for heat and power; it is an ideal resource for the energy transition.

There are many other great opportunities that can help Mexico reach its clean energy goals. Biofuels have great potential. Large areas of poorer quality, unused, land could be planted with crops such as jatropha, suitable for making biodiesel. Energy from processing waste to make fuels is another large resource opportunity. The potential for direct lithium extraction from oilfield brines is yet another opportunity – this is progressing at pace in the nearby Jurassic age Smackover Formation reservoirs in Texas and Arkansas.

I hope to visit Mexico again soon, and as someone passionate about the success of Mexico, I hope that the government will take up my offer to meet and share my ideas for building a successful energy future for all Mexico. 2025 has all the makings of a pivotal year.