Mexico’s presidential election gives a sign of U.S. energy future
On July 1, Mexicans head to the polls to select their next president. While it has become fashionable to wall Mexican matters away from American politics, in reality the Mexican election could transform the North American community. At the epicenter of that future is a quiet, steady effort to reform Mexico’s energy markets and roll back the monopolies of Mexico’s stateowned energy companies. These reforms have already triggered contracts that could yield $200 billion in investments in the coming years.
Until now, nobody has really known what Mexican voters think about all this change, but the answers matter because the contending candidates for the presidency have outlined starkly different visions for the future. In April, we ran — in tandem with the Brookings Institution, the University of California at San Diego, the global consultancy IHS Markit and a leading Mexican newspaper, El Financiero — the first systematic poll of Mexican voter attitudes. What we found is disturbing and important as North Americans watch the upcoming elections.
Most strikingly, 48 percent of respondents support continuing the energy reforms, even though 61 percent feel they are not producing good results. Almost half, or 47 percent, said they don’t think the reforms were necessary.
Most, however, do not want to return to the past. For decades, Mexicans saw Pemex, whose nationalization in 1938 is still a national holiday, as the country’s crown jewel. Those days are
gone. More than half of Mexicans did not feel Pemex has acted to the country’s benefit (61 percent versus 30 percent). Mexico is at a crossroads — the old models no longer work, but new models don’t yet exist.
Digging deeper into survey results found most Mexicans believe the country’s oil production had increased or stayed the same in the years prior to the 2013 constitutional changes. In reality, production peaked in 2004 at 3.5 million barrels per day; persistent lack of investment had reduced production to 2.4 million bpd by 2013. So Mexican confusion on reform efforts is no surprise considering they hadn’t realized production had collapsed.
Almost everything that is important in the energy sector takes a long time to bear fruit — that’s because investment cycles are long, and longer still when investors aren’t sure whether new policies will hold. It takes three to five years for investment to translate into production and, optimistically, two years before that to pass the laws and regulations needed to execute a bid round. Thus, when Mexico changed its constitution in 2013 to open oil production to outside investors, it was going to take at least five to seven years before oil production might increase. By that standard, the reforms are on schedule: Today, more than 100 fields have been awarded for investment, there have been significant initial commercial finds and production is set to rise around 2020. No country has managed a faster transformation of its energy sector than Mexico.
Mexican voters may see reforms so far as merely unfulfilled promises. That’s no small matter north of the border. After all, it is American companies — along with U.S. jobs and U.S. investors — that are perhaps best positioned to benefit from Mexican markets continuing to open.
As much as Mexico has evolved as a competitive global economy, holding an impressive number of free trade agreements paving the way for international commerce and investment, some 51 percent of the country’s voters worry that private oil investment will not benefit the Mexican people. Almost two-thirds of poll respondents showed a wariness of foreign energy dependence, citing a belief that importing more than 50 percent of gasoline and natural gas from the United States puts Mexico at significant risk. That’s bad news for Americans, now the No. 1 exporter of those products.
Just as Mexicans are impatient to see benefits from reform, other oil producers are competing to attract private investors — from Saudi Arabia to Russia and Brazil. Gone are the days of big oil producers turning a blind eye to inefficiency as the money kept sloshing in. Now, global oil is in a race to get lean.
Recently, the United States has been making noise about cutting off Mexico. Now it is Mexico’s turn, and the losers could be American companies wanting to do business south of the border. Fixing this problem won’t be easy, but it starts with talking openly — with the public, not just elites — about how reform actually works. And why openness and competition are good news all around. Pascual, a former U.S. ambassador to Mexico, is IHS Markit senior vice president for global energy. Victor, a professor at UC San Diego’s School of Global Policy and Strategy, co-chairs the Cross-Brookings Initiative on Energy and Climate at the Brookings Institution. Fernandez de Castro Medina is director of the Center for U.S.-Mexican Studies at UC San Diego.