Mexico Hits Road Bumps En Route to Nationalizing its Energy Industry

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Mexican President Andrés Manuel López Obrador wants energy independence. Not from possibly hostile foreign nations, but from multinational firms operating within his country’s borders.

Now, his populist campaign to reclaim the oil-and-gas industry from private firms, has flipped the nation’s energy paradigm on its head. The consequences: Spiking energy costs, weak economic growth, a slowing transition to clean power, and a possible cessation from the global community.

Public Enemy Number One

Mexico’s post-pandemic revival has been stuck in the mud. Its economy lags behind the US and Canada at levels not seen since the mid-1990, and the International Monetary Fund estimates project Indonesia will overtake it as the world’s 15th-biggest economy next year. Still, President Obrador is carrying out a crusade against multinational energy firms — whom he alleges, mostly without evidence, illicitly paid their way into the Mexican market — even as critics say it will only make matters worse.

Now, he’s taking sharp action to return the power, literally, back to the government — consequences be damned:

  • Last year, a new law went into effect forcing the national electric grid to prioritize electricity produced by the Federal Electricity Commission (CFE) — a study by the US government’s National Renewable Energy Laboratory, however, claims this may raise Mexico’s overall energy bill by over 50%, worth roughly $5.5 billion a year, and increase carbon emissions by 65%.
  • The Mexican government has also halted all new auctions for private oil-and-gas exploration, as well as investments into private electricity generation — including wind and solar farms that could produce power at 33% of the CFE’s average cost, according to reporting from The Wall Street Journal.

In sum, according to environmental groups such as the Natural Resources Defense Council, the moves will likely prevent Mexico from achieving the carbon reduction goals outlined in the Paris Climate Agreements.

Arbitration Nation: Private equity giant KKR says it will sue the government for $667 million in damages, after one of its fuel-importing terminals was seized and closed by Mexico’s energy regulator last year. Talos Energy, a Houston-based firm, also says it is pursuing legal recourse after Mexico seized operating control of an oil field it discovered last year.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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