Mexico’s vote may hit U.S. oil giants
As President Donald Trump moves to recast trade and border relations with Mexico, U.S. oil companies are worried that the prospective winner of Mexico’s presidential election will play his own nationalist card.
The leading candidate, Andrés Manuel López Obrador, wants to reverse policies that have tied a knot between Mexico and the United States in recent years in energy production and consumption. And he has promised to make sure that oil never falls “back into the hands of foreigners.”
In addition to threatening refinery profits in the United States, his proposals could slow down oil production in Texas and impede deep-water drilling in the Gulf of Mexico by international oil giants like Exxon Mobil and Chevron. They would also jeopardize the U.S. energy trade surplus with Mexico, which reached roughly $15 billion in 2017.
López Obrador, a former mayor of Mexico City with leftist
leanings, has a comfortable lead in the polls before the July 1 vote. He has moderated his tone since losing the presidential race six years ago, but he has proposed a sweeping reorientation of the nation’s energy policy with an emphasis on independence from the United States.
He has pledged to end oil exports, nearly all of which go to the United States, by 2022, and to instead spend $6 billion on building two refineries that would process crude for domestic consumption. That would sharply reduce U.S. exports of gasoline to Mexico.
López Obrador and his top energy adviser, Rocío Nahle, a former legislator who is in line to become energy minister, have called for a freeze on future deepwater drilling auctions and a review of contracts with international oil companies.
Such positions hark back to the 1930s, when Mexico nationalized its oil industry. Under the current government, a constitutional change enacted in 2014 let foreign companies invest in exploration, drilling, pipelines and even gas stations, and to team up on projects with the state oil company, Petróleos Mexicanos, or Pemex. The move allowed companies such as Exxon Mobil to invest billions of dollars to develop vast fields offshore.
The election outlook has caused concern among U.S. oil executives.
“Mexico is very critical as an energy partner of the United States, so a retreat from current policies would be a tragedy for both countries,” said Scott Sheffield, chairman of Pioneer Natural Resources, a major Texas oil and gas producer. “It’s going to hurt Mexico long term and the United States long term.”
Mexican oil officials, expecting at least a slowdown of their policies, are holding offshore auctions as fast as they can to lure investment before President Enrique Peña Nieto, who is barred by law from seeking a second term, leaves office in December. More than 100 development contracts have already been awarded. The nation’s oil production remains in decline, but officials hope they can reverse the trend as international companies begin to produce large amounts of oil in the Gulf of Mexico over the next two years.
Some oil executives and energy experts say they are not overly worried that the new contracts will be overturned. They note that López Obrador will almost certainly not have the congressional support to entirely rescind the constitutional energy change. Campaign oratory could give way to the realities of governing, especially when the oil industry offers financing for more social services. The government has earned signing bonuses of $525 million from investors so far this year as a result of its efforts.