Mexico's energy sector has entered a tumultuous period following President Claudia Sheinbaum's recent constitutional reforms, which effectively abolished the country's independent energy regulators, sparking widespread debate about the future of the industry and the financial health of state-owned Pemex.
Signed late on Friday, the law mandates Congress to develop new regulations within 90 days, paving the way for increased state control over the energy market. Key agencies, such as the hydrocarbons commission (CNH) and electricity regulator (CRE), will be dissolved, as will the competition authority Cofece and telecom regulator IFT. This decree results from reforms first proposed by former president Andrés Manuel López Obrador, who aimed to strengthen the federal electricity commission (CFE) and Pemex against private sector competition.
Analysts are raising concerns about the repercussions of these wide-ranging regulatory shifts. The Mexican employers' federation Coparmex remarked, "The abolition of the regulators was a backward step for transparency, economic competition, and the protection of rights." This assertion reflects fears among business groups about the potential stifling of private investment, which could lead to significant drawbacks for the entire energy sector.
Under the new structure, the executive branch is set to oversee the energy sector. While the exact framework for this oversight remains undefined, energy analyst Miriam Grunstein warned, "With thousands of existing permits to approve and administer, a small regulatory office will not be able to attend the needs of a vast energy ecosystem." This statement implies the diminishment of regulatory oversight, positioning regulators as enforcers of state monopolies rather than advocates for market development.
The urgency of these developments is underscored by the dire state of Pemex, which is grappling with approximately $97 billion in debt. The company's oil output dropped by 9% year-on-year to 1.49 million barrels per day (Mb/d) as of November, according to CNH figures. This decline reflects not only the aging of current oil fields but also the company's inability to invest meaningfully due to its crippling debt.
Despite Sheinbaum's commitment to maintaining production levels at 1.8 Mb/d, Pemex's financial struggles are expected to hinder this goal, particularly as the company produced 94% of Mexico's oil supply. Following government efforts to curb foreign participation, there are growing concerns about Pemex's capacity to reverse the downward trend of both oil and natural gas output.
Recent figures indicate even steeper declines for natural gas, which fell 14% to 3.5 billion cubic feet per day (Bf³/d). The cumulative effect of these drops has aroused skepticism about the sustainability of Mexico's energy resources, especially with the added burden of reshaped regulatory frameworks favoring state ownership.
To manage its mounting debts to suppliers, Pemex has announced plans to implement staggered payments. According to Sheinbaum, "All suppliers owed money by Pemex will be paid in due course." While specific details of these payments are still forthcoming, this measure aims to assure energy service providers and keep supply chains intact. Notably, Pemex's debts to service providers total around $5.1 billion.
The collaboration between Pemex and the finance ministry is seen as necessary to uphold the credibility of the Mexican state oil company, which has been under scrutiny for its financial governance. The urgency to settle these debts is evident, with the association representing oil service providers recently urging Pemex to resolve outstanding payments totaling approximately 103.6 billion pesos.
Throughout this transformation, Mexico's energy future remains uncertain. Analysts and business leaders alike are left questioning whether these reforms will bolster Pemex's health and operational capacity or hinder investment and development. The next few months are pivotal as Congress navigates the adjustment of laws whilst Pemex confronts its overwhelming debt and declining output.
With the backdrop of faltering production and heightened state control, the path forward for Pemex and Mexico's energy market will be closely monitored by domestic and international stakeholders.
