A trio of U.S. trade organizations led by the American Petroleum Institute (API) is again calling on the Biden administration to engage forcefully with Mexico over the latter’s energy policies, which the groups say give preferential treatment to Mexico’s state-owned producers of hydrocarbons and electricity.
In a letter to U.S. Trade Representative Katherine Tai, API - along with the National Association of Manufacturers and the American Clean Power Association - urged “continued action to hold Mexico accountable for its discriminatory energy policies by using every tool available under the U.S.-Mexico-Canada Agreement (USMCA).”
Since taking office in 2018, Mexican President Andrés Manuel López Obrador has slammed the brakes on the previous government’s constitutional energy reforms, which sought to open the oil, natural gas and electricity sectors to competition from the private sector.
López Obrador, known commonly as AMLO, has instead sought to consolidate the market power of national oil company Petróleos Mexicanos (Pemex) and state power utility Comisión Federal de Electricidad (CFE).
“I think the biggest issue for our members…is around permitting,” API’s Aindriu Colgan, director of tax and trade policy, told NGI. “There’s been a systemic move by the AMLO administration to deny, to delay the approval of even routine permits to private investors in Mexico.”
Many of the permits facing delays are for requests as simple as changing the branding of a service station from Pemex to a private sector oil and gas firm, according to Colgan.
“The government of Mexico’s escalating pursuit of discriminatory policies dramatically favors Mexico’s state-run electrical utility and state-run oil and gas companies, hindering private sector investment, threatening companies in the United States and their workers, and undermining North American energy integration and our regional competitiveness vis-à-vis China and other rivals,” API and its allies said. “The energy measures implemented by Mexico also add costs for manufacturers that rely on existing contracts with energy suppliers and make it harder for them to meet long-term sustainability goals in Mexico, while also slowing the deployment of renewable energy in Mexico.
“Furthermore, measures like Mexico’s holdup in the issuance of permits for energy activities – for example, the permits that enable major U.S. investors to open service stations in Mexico – undercut our companies and can restrict the supply of energy that North American manufacturers and consumers need.”
The regulatory squeeze on private energy suppliers is preventing manufacturers in Mexico from securing electricity and natural gas on competitive terms, Colgan said.
The USMCA and its predecessor, the North American Free Trade Agreement, centered around “this grand vision of a North American economic bloc…an integrated energy, but also integrated manufacturing sector across our three great nations,” said Colgan.
Following the 2013-2014 energy reform, U.S. companies opened plants and factories in Mexico “with the promise of a reliable supply of energy, be it natural gas or electricity, to power and run those facilities,” Colgan said. “And now that supply is in jeopardy because of the AMLO administration’s insistence on returning to the glory days of the 1970s when Pemex and CFE were running the show, so to speak.”
Colgan noted that API is not asking the Biden administration “to infringe on Mexico’s sovereignty in any way or impose some external solution on Mexico…All we want is for Mexico to follow its own laws, to follow its own permitting procedures and processes that have worked so well in the past.”
The Biden administration last year requested consultations with Mexico under the USMCA about López Obrador’s state-first energy policies.
However, “In our view, the government of Mexico has not engaged constructively in the consultation process with the United States, nor has Mexico taken meaningful steps to address the issues raised by the United States,” the trade groups said.
Under López Obrador, there have been no open seasons or pipeline capacity releases on the Sistrangas natural gas network, limiting the ability of non-state shippers to secure pipeline space to import and market natural gas.
His energy ministry Sener also sought to require large gas users to source their gas from either Pemex or CFE. The country’s Supreme Court subsequently halted this effort.
Through its subsidiaries, CFE is the primary importer and marketer of natural gas in the country.
CFE management has said it plans to make capacity available on both its Mexico and U.S. pipelines in the near future.
Despite the tension between López Obrador and the private sector, CFE continues to forge ahead on natural gas infrastructure projects with international firms such as Sempra, TC Energy Corp., Engie SA and New Fortress Energy Inc.
