Background on the Mexican Energy Sector and its Challenges
The Mexican government recognizes the enormous challenges facing the energy sector, particularly in electricity and oil & gas. Their goals acknowledge the need for nearly 30 gigawatts of new installed capacity, equating to 5,000 megawatts per year. In oil and gas, aiming to pay off debts to suppliers, avoid further indebting Pemex, and maintain 1.8 million barrels of crude production per day is a daunting task.
In the final year of the previous administration, Hacienda suggested a bailout of around 40 billion USD to keep Pemex afloat.
Government’s Current Progress and Promises
According to the government, significant steps have been taken. Last week, CFE announced that two combined-cycle power plants entered operation, adding 1,300 megawatts of capacity. Another 1,100 MW is expected to be inaugurated by year-end, with 3,500 MW planned for 2027.
However, the recently promised 2,400 MW for 2025 still falls short of the famous 54% needed annually during this six-year term. The 3,500 MW for the next two years (1,750 MW per year) is also insufficient. Out of the required 15,000 MW in three years, CFE plans to inaugurate only 5,900 MW, which is merely 39%—assuming no further delays. These figures are based on plans announced years ago, with central targets set by Manuel Bartlett and President López Obrador.
Pemex’s Situation: A More Dramatic Scenario
Pemex’s situation is more critical. This week, they reported interest from the private sector in 7 mixed contracts, totaling around 20 billion USD in investment and less than 100,000 barrels per day of incremental crude production.
While some view this as positive, the investment amount is nearly equal to Pemex’s current acknowledged debt to suppliers. The estimated bonds, assuming no disinterested parties, is only 3 billion USD. Adding Ixachi brings this to 8 billion USD, which was previously hailed as a symbol of sovereignty rescue under López Obrador’s administration. However, this is concerning; incremental investment is now being compared to short-term supplier debt to sound appealing.
Operationally, this plan would produce less than 5% of what’s needed to meet the target—and a fraction of the assumed natural decline. Following Pemex’s significant investment cut for this year, it remains unclear if mixed contracts can adequately address this new gap.
The Need for Comprehensive Solutions
State-owned companies are already operating at full capacity. The government is right to seek all possible private sector assistance. However, it’s unclear if they understand that each regulatory or contractual variation deviating from traditional industry standards not only limits the pool of capital that could be deployed in Mexico but also delays its deployment.
While a few may pledge rapid movement under exceptional schemes, recognizing the need for replicable and scalable solutions that leverage Mexico’s access to large capital pools is crucial. These solutions must consider the timelines and constraints involved.
Key Questions and Answers
- What are the energy sector challenges in Mexico? The Mexican government acknowledges significant challenges, particularly in electricity and oil & gas. They need nearly 30 gigawatts of new installed capacity (5,000 MW per year) and aim to address oil & gas debts while maintaining production.
- What progress has the government made? The government claims to have taken significant steps, with CFE announcing new power plants and plans for future installations. However, these promises fall short of the annual requirements.
- How is Pemex’s situation? Pemex faces a more dramatic scenario, with insufficient private sector investment interest to address its debts and maintain production levels.
- Why are comprehensive solutions necessary? State-owned companies are operating at full capacity, and the government seeks private sector assistance. However, deviating from traditional industry standards with regulatory or contractual variations limits and delays capital deployment.
