AMLO rules out new Mexican energy rounds

President Andrés Manuel López Obrador (AMLO) ruled out new energy rounds in 2020, reiterating his demand that Mexico's private sector first invest their fair share and produce results on previous contracts.

During his Wednesday press conference, the president accused firms of being unwilling to invest and said the system of rounds would privilege speculation over results.

“What we are asking for now is that they invest, because they have contracts and do not produce,” the president said.

“How are we going to give them new contracts if they are not investing?,” adding “This is not a political, ideological issue; it is practical judgment.”

AMLO also promised a public-private energy investment plan for mid-February to promote production at both Pemex and CFE. 

But new energy rounds (particularly deepwater oil developments), which appeared to gain momentum in recent months, seem off the table for now.

The president was responding to a report in local press, suggesting new oil rounds were planned for mid-2020. Sources cited in the report said these rounds could help the government reach crude production of 2.4Mb/d, up from the current 1.7Mb/d. 

Doubling down while referring to farmout contracts, AMLO said the government would review concessions for breach of contract, especially those that involve subsidies.

CFE

Although the president vowed to maintain existing contracts, actions like the forced re-negotiation of contracts between natural gas pipeline companies and state power utility CFE in August 2019 suggest his administration is willing to contest certain aspects of the contracts.

AMLO said previous arrangements between private renewable energy firms and CFE were unfair because they placed the cost of interconnection and transmission on the state company.

“People were fooled for a long time by telling them that the subsidy given in electric power was for the consumer,” AMLO said. “But no, the larger part of the subsidy is for private companies, and this does not happen anywhere in the world.”

CFE documents leaked to the media in recent weeks suggest a shift away from solar and wind projects, which has raised serious concerns in the local renewables industry.

This comes as the government continues to reframe the definition for clean energy licenses to include hydro and nuclear projects – a move that would clearly benefit CFE projects to the detriment of solar and wind. 

US$36.7bn O&G INVESTMENT 

Data from national hydrocarbons regulator CNH indicate that investment associated with the first three energy rounds is on track to reach US$36.7bn in the coming years with US$4.6bn estimated for 2019 and US$3.7bn for 2020 – much of this from private sector firms.

Of the total, five contractual areas concentrate 55% of the investment approved for this year: Pemex in Ek-Balam migration (US$767mn); Italian energy giant Eni in block 1 of round 1.2 (US$570mn); Argentina's Hokchi in block 2 of round 1.2 (US$368mn) and US firm Fieldwood in Petrobal block 4 of the same round (US$328mn).

US energy firm Talos will also on track to invest in a 35% participation in block 7 of the Zama field, recently confirmed to have 670Mboe, near the high end of the company’s previously guided range.