Touted Energy “Reform” Goes Awry in Mexico

Dream of cheaper energy in an open market turns into nightmare.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Four years ago, Mexico’s government passed a sweeping energy reform aimed at opening up Mexico’s long-protected oil and gas sectors to global competition and expertise for the first time in over 70 years. The reforms would lead to lower energy prices for domestic consumers as well as thrust Mexico into a more prominent position in the global hydrocarbons market, the government confidently predicted.

Instead, the opposite has happened: prices of gas, diesel and natural gas have soared while Mexico’s heavily indebted state-owned energy giant, Petróleos Mexicanos, or Pemex, got tangled up in the oil bust, lost $9 billion in 2016, received a bail-out, and after making money in Q1 and Q2 of 2017, lost another $5.5 billion in Q3 2017. In other words, it has been tough on Pemex.

Production at Pemex dropped 9.5% in 2017 to 1.94 million barrels per day, its lowest level since 1980. At the same time 71.6% of the gasoline used by Mexicans last year was imported. It’s a humbling statistic for a country that not so long ago boasted the world’s second biggest oil field by production, the Canterfell.

On average, 570,600 barrels per day were bought from abroad in 2017, 60% more than in 2013. Much of it came from the US. As for Diesel, 237,500 of the 317,600 barrels sold each day came from another country — an import rate of 75% — while an average of 67% of the 2,623 million cubic feet of natural gas sold per day was imported from abroad.

Mexico’s growing reliance on energy imports could make it even more difficult for the Bank of Mexico (or Banxico for short) to bring down inflation, which reached an annual rate of 6.8% in December, almost four percentage points above Banxico’s target rate.

An analysis of Mexico City gas stations by the financial daily El Financiero revealed that regular gasoline was selling for over 17 pesos per litre at most of the pumps, compared to 16.5 pesos per litre at the beginning of the year. “The price has risen due to the impact of rising crude prices, as well as the movement of the dollar, the currency in which most of our inputs are quoted,” said Fernando González Piña, president of the National Organization of Gas Retailers (Onexpo) of the Valley of Mexico. Prices are also rising because of the extra costs incurred from delivering imported fuel in a country with as yet inadequate transport and pipeline infrastructure.

It’s not just prices at the pump that are rising; so, too, is the price of electricity. In many places prices are not just rising, they’re soaring, with some businesses complaining of a 400% hike in their electricity bill since a new method for calculating tariffs was introduced in December — another result of the Peña Nieto government’s once lauded energy reforms.

The president of Mexico’s Confederation of Chambers of Commerce, Services and Tourism (Concanaco), Enrique Solano Sentíes, has even warned that unless steps are promptly taken to turn this trend around, the rising price of electricity, which already accounts for 15% of input costs for some businesses, will have a major impact on consumer prices for products and services.

This would push Mexico’s inflation rate even higher, prompting the Bank of Mexico to raise its policy rate further (currently 7.25%), whose side effects include strangling credit growth and hurting economic activity. If this process goes on long enough, Mexico could find itself trapped in a stagflationary spiral.

This is not the only energy-related trap Mexico is currently caught in. There’s also the deadly fuel-theft trap.

The 20% spike in prices at the beginning of last year — the so-called Gasolinazo — made stealing fuel more lucrative than ever in the eyes of criminal groups. Here’s how the vicious cycle works: the more petrol prices rise, the more money there is to be made from stealing fuel from Pemex, which further weakens its financial health, in turn prompting higher fuel duties and, of course, higher prices. Rinse, repeat.

It’s not just well-armed criminal gangs that are in on the act; so, too, are Pemex engineers and local Mexican politicians, as a new report by Animal Politico reveals. In one case an armed Pemex engineer was caught trying to steal fuel in Guanajuato. He was released the same day and within 24 hours was back at work.

Pemex’s decline is ultimately a story of systemic plunder and corruption, from virtually all sides. Those doing the plundering include the firm’s executives, some of whom are already deeply implicated in the Odebrecht scandal, its unions, particular the people at the top, and Mexican politicians.

In addition, Pemex’s erstwhile crown jewels — 29 oil fields, located in deep or ultra-deep waters in the Gulf of Mexico — are about to be auctioned off, and Pemex, after decades of being plundered and starved of cash, finds itself competing with global oil majors, most of them with much deeper pockets, for resources that it once owned — and can no longer afford to develop. By Don Quijones.

Is it possible to pinpoint the world’s most expensive crude oil? Read…  The World’s Most Expensive Oil

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  40 comments for “Touted Energy “Reform” Goes Awry in Mexico

  1. Joan of Arc says:

    This is a sad story about Pemex. Mexico sure exports some good beer like Corona though. I hope no one is steeling that because I don’t want Corona prices to go up…finding limes at a reasonable price is difficult enough.

    • Tom T says:

      So world social, economic events, realities, have no impact on you unless they could potentially negatively impact your own needs for hedonistic self pleasuring. That is the very definition of sociopathy. Your various comments here strongly indicate that you are in need of help.

      Might I suggest you give my cousin a call … he is a celebrated psychiatrist in Philly, perhaps you have heard of him … Dr. H. Lecter? Do call soon.

      • russell1200 says:

        Not caring about things that don’t directly effect you also goes by the name “Normal”. An inordinate degree of normalcy could also be called “Selfish”.

        The bar on what is gets called sociopathy is pretty low, but not that low.

        I cringe more at the idea that Corona is anything more than a somewhat bland Americanized beer.

      • Joan of Arc says:

        “Might I suggest you give my cousin a call … he is a celebrated psychiatrist in Philly, perhaps you have heard of him … Dr. H. Lecter? Do call soon.” Tom T

        I just didn’t want the price of a cold Corona with lime to go up. Why should that get me directed to the couch of Dr. H. Lecter in Philly? I have no intention of travelling to Philly when I can get a great Philly beef sandwich in another State far away. Besides, I don’t think your cousin, Dr. H. Lecter, gravitates to eating Philly sandwiches if I am not mistaken.

        • Frederick says:

          WHY on God’s earth would someone put fruit in beer? I can’t fathom that and Russell is correct about Corona being tasteless Give me a Kozel instead please

    • Silly Me says:

      Corona, as most beers in the US, is made from GM corn. Even Stella is using American GM-based yeast, while manufactured in Belgium.

    • Cal says:

      Thank the Germans for the good beer. They came in with Maximillian’s army, in the 1800s and brought the knowledge of how to brew. Oh, and the brass instruments used in military bands that later became Ranchero music’s base.

  2. Kiers says:

    what exactly did Pena Nieto do when it is mentioned he ” opening up Mexico’s long-protected oil and gas sectors to global competition and expertise for the first time in over 70 years”…????

    My guess, GS/JPM/C came calling with swaps and derivative deals tied to high oil prices, and ……o you’ve heard this fable before?

    • Wolf Richter says:

      For a rough idea of the reform package and its magnitude, here are the first two paragraphs of the 32-page report “Mexico’s Energy Reform” (entire report linked below):

      “In 2013, the Mexican government embarked on a series of institutional reforms, ending a decade-long political gridlock to enhance economic growth and competitiveness. The government targeted the energy sector, among others, and set out a process of making it more competitive, lower cost and environmentally sustainable. The government amended Mexico’s constitution to allow private investment in both the electric and petroleum sectors. These amendments, plus a series of laws enacted in 2014 would end the 75-year-old monopolies held by two state-owned behemoths – Pemex and CFE. Henceforth, Mexico intended to attract domestic and foreign investment into the energy sector. Moreover, it initiated policies to harness its substantial resource potential, such as solar, wind and geothermal power, and deep-water oil, which had long been underdeveloped. And it would build a modern energy infrastructure, utilizing inexpensive natural-gas imports from the USA.

      “Yet shortly after the reforms were announced, oil and gas prices began to fall. “The reform was important under high oil prices,” observed Mexico’s Finance Minister Jose Meade, “but became crucial with low oil prices.”2 This situation induced decreases in investment and energy efficiency. While the Mexican government had just adopted international best practices, the transformation of Pemex and CFE would prove to be difficult. Both institutions had decreasing productivity and increasing debts, and the government’s plan to make them profitable enterprises had not yet come to fruition. With oil prices in the $40s during much of 2016, some wondered whether the reforms would attract suitable investors and yield the goals of (1) lower prices, (2) cleaner energy, and (3) shared benefits. Could the Mexican government and its new investors balance both bold and prudent actions in a manner that deployed intensive regulation, rather than privatization, to facilitate efficiency and growth?3 Could they “make national champions into competitive firms,” asked Miguel Messmacher, Undersecretary of Finance, while “generating market incentives and increasing corporate governance?”4

      • BTilles says:

        My impulse is to really hate on The Pena Nieto government for adopting these “ok if you say so” reforms. But, they do gave a genuine social welfare problem. They have high levels of retail subsidy built in to electricity prices and the government claims they can no longer afford it. (My guess is they tried to even out prices across the country. The EIA shows energy prices in reatively remote southern Baja are six times higher than prices in say Ciudad Juarez. I suspect large parts of rural southern Mexico experience similarly high prices.) My point is the problem is real. But the neoliberal, privatize it solution doesn’t address the real source of the problem, which is the geographical vastness of Mexico. And how expensive it is to keep the country “connected”.

        • d says:

          Privatisation in Mexico is being used in a similar way to some other states.

          To close down (Over time) unsustainable leftist controlled state entities.

          GM had to go Bankrupt before the UAW would even consider reality.

          Pemex has similar union and staff problem’s.

          The only resolution for Pemex, is to take away the monopoly then break it up, slowly.

    • Sempra has a subsidiary IEnova, which trades on the Bolsa, but not on the NYSE. IENOVA.MX. So there’s a lot going on, and certainly a lot to do (they have infrastructure needs too), and doing it according to Mexico’s limits on foreign investment. They don’t really trust the U.S. which accounts for the bad press, stories about corruption. Bush built a number of (still empty) FEMA camps in the southern part of the US to handle a refugee crisis from Mexico should their government collapse, or go full socialist. The border wall is as much about that an anything. If Venezuela is going broke being a oil exporting nation, then why shouldn’t Mexico sell off its offshore rigs?

    • Javert Chip says:


      Divining intent of socialist Mexico’s “deregulation of oil” is not exactly my cup of tea. However, PEMEX obviously experienced declining output resulting from normal & predictable geological and obsolete technology reasons. Additional wild guess; politicians were stealing from PEMEX.

      Pre-deregulation, Mexico didn’t have capital for developing modern oil technology, and tried for years to buy it from other world oil majors. This failed because oil majors wanted payment in “participations” for resulting PEMEX profits (a reasonable request). This type payment was illegal under previous laws.

      Oil majors invest tens-of-billions of shareholder profits in developing new technology, and have exactly zero interest in selling it (like a commodity) to PEMEX. One of Mexico’s expected deregulation changes was the ability to obtain critically needed oil technology thru “participations”. Given intervening oil price changes, I’m not sure how well this is going (no pun intended).

  3. michael Engel says:

    If you are a loser in winning industry, it’s a bad accident.
    If you are a long term survivor in a loser industry, it’s a waste of time.
    You constantly deplete govt resources (or others) to stand on your feet.

  4. Bookdoc says:

    Having lived in Mexico City, and knowing the corruption that exists on all levels, why would a company take the chance that Mexico wouldn’t nationalize the oil companies AGAIN!

    • Javert Chip says:

      Excellent question. I’m waiting to see what happens when Venezuela tries this with China.

      • d says:

        Sadly I believe the CCP has Venezuela tied up the same way as Ecuador.

        The CCP gives new meaning to “Predatory lending”.

        The whole Belt road development is based on it, as Sri lanka has shown. With its white Elephant port and industrial development, the CCP has repossessed.

        • kiers says:


          CCP has “bought” the largest Greek Port for a song (some 300 million euros (no kidding); and has predatory grasp on Pakistan via debts it could never repay, as well.

        • d says:

          Problem being CCP Just like Russia has Troll factories (Allegedly run by Patriotic citizens ( A new weak form of Plausible deniability)) pushing the Pro CCP message.

          The chinese civil war , won by the CCP was complete waste of time, as the CCP is now more corrupt and monopolistic, than the Sheck regime ever was.

          Today the corrupt CCP Politburo members, have more power and wealth, that the mandarins ever dreamed off.

          What needs to be prepared for, is not the implosion of china, but the carnage it will wreak on the global systems when it does finally implode.

          Historically china has done this before, and the fallout has been catastrophic for the entire planet.

          When Napoleon said beware the dragon, his warning was not about its advance, but the mess it leaves behind as it retreats.

    • Keith says:

      I think that is the concern with the up and coming election there. Until that unknown is resolved no one may want to enter the market.

  5. farmlad says:

    Any Idea what the numbers were for Net crude exports and Net imports for refined products in $ terms?

  6. JB says:

    The massive losses from gas theft pushed this company to the brink. Constitutionally the oil reserves belong to the people of MEXICO. Wonder if rising electric prices are increasing manufacturing costs in the maquiladora’s. Maybe companies are rethinking moving to mexico.

  7. Paulo says:

    It’s still 25% cheaper than what we pay retail, here, on Vancouver Island. It’s 30% cheaper than what Vancouver customers pay. And we produce over 2X what we domestically consume.

    Perhaps we can send our excess production to Mexico by tanker when the current US Govt torpedos NAFTA.

    Mexico is also a prime candidate for solar conversion as well. Maybe China could advance them solar infrastructure in exchange for a few naval bases. :-)

    My above comments are a bit tongue in cheek, but I am deadly serious about the following statement. It does not behoove the US to see Mexico fail, in any way, shape, or form. They would be advised to promote and reinforce Mexican economic stability as much as possible. Beware of unintended consequences on a porus border. Energy source failure is beyond serious. A reduction in energy will undermine industry and social stability, and they both are already tenuous, at best.

  8. george mcduffee says:

    Can anyone cite an example where “privatization” worked in the sense of providing the typical consumer with increased supplies and/or lower costs?

    • Wolf Richter says:

      The key is competition. Privatization without competition can turn into a consumer ripoff.

      But most of the time, when entities are privatized, there is little or no direct competition. This is because the state generally discourages competition to state-owned enterprises. So when you privatize it, you have a monopolistic structure that would require heavy-handed regulation. And then, you might as well not privatize it.

      When Mexico privatized its telecom carrier, Telmex, Carlos Slim, who had excellent relations with the government, submitted the bid that won. This was a monopoly. It and subsequent similar privatizations made him one of the richest people on earth, at the expense of Mexican consumers.

      The problem wasn’t privatization. The problem was corruption and lack of competition.

      • Nick says:

        For competition to take place the government and it’s heavy handed regulations need to step aside. You need a permit to run a lemonde stand in America nowadays. America is so far removed from having free markets and “capitalism”. Also the elephant in the room is land ownership. No society and no people will ever be free as long as land is increasingly being gobbled up by governments and “barons” like Ted Turner. Why one man should be allowed to own millions of acres is evil, seriously. It’s a sin against humanity. Same goes with Indian reservations. Their land should be taken away except for what they truly need to survive and prosper and distributed among Americans. My progeny deserves some of that land just as much as the so called disenfranchised natives who were all loving peaceful victims. Let’s see………might makes right….let’s have a do-over……I’ll pit my kids against the native’s kids in battle and winner takes all! How about it? I laugh at all these rich oligarchs and politicians who would never physically be able to defend ANYTHING in their gluttonous life if they had to. We should go back to those days to some extent. Laws? Yeah laws are backed up by physical force. Problem is individuals can no longer use physical force to take what they deserve and want/need. But government can.

    • Javert Chip says:


      This isn’t exactly “privatization” but close –

      The heavily protected AT&T monopoly was “privatized” (aka: broken up) in 1982 – telecom prices plunged and service improved.

      This seldom happens because the USA is not socialist (ie: government owns means of production); in the US, it’s more likely to be the result of anti-trust,

      • Nick says:

        Ha, no the government can just print endless amounts of “capital” which in turn is used to gobble up stocks, bonds, land etc. LOL..hahaha. and it’s all backed by nuclear weapons and police forces and alphabet agencies that are all armed as well as the military.

        USA isn’t socialist….it’s an outright kleptocracy.

  9. Bin says:

    Back around 2000 I was working for an oil service co. Did a project for pemex and got stiffed. Been corrupt for a long time.

  10. Petedivine says:

    I thought we were several years away from the current state. Just the facts please. Average Mexican worker makes $15k annually. Gas per gallon in Mexico is $3.75 a gallon and rising. Mexico is our third largest trading partner. Mexico exports $250 Billion per annum in fresh produce to the U.S., Question: What does a failed state on the U.S. southern border look like? What if that State also happens to be our third largest trading partner? Lots of parallels to Venezuela. It appears Trump wanted a wall to prevent the massive economic wave of refugees from coming to the U.S. Too late Mr. Trump !! We look at the numbers and position our bets. Mexico is also the largest Silver mining nation. Can’t mine silver without gasoline. Can’t raise crops and export to the U.S. without gasoline. Can’t build a car without gasoline. Yet the real impact is to humans living real lives that just got a lot more desperate. Mass exodus? You can’t fix Pemex. What happens next? Happily ever after? I think not. Let the bourgeoisie place their bets.

    • Javert Chip says:


      This website ( indicates average wage in Mexico is about US$10,000. “Averages” are highly misleading and I would much prefer “median”.

      However, most (especially poor) Mexicans shop at Mexico prices (and quality), not USA prices.

      Of course Mexico could fix the PEMEX problem (corruption), but not if all 125 million of them migrate (legally or illegally) to the USA – it’s called a revolution and people actually die for their beliefs of a better way of life. The USA already did this in 1776.

      The USA, at 4.2% of global population, cannot possibly take care of everybody.

      • Petedivine says:

        I’m not sure Mexico can fix Pemex at this stage. It’s late in the game. Pemex claims to have about 7 years of proven oil reserves. That oil is probably harder to pump then previous reserves. They also have the bad habit of over estimating reserves. In any case the high price of gasoline $3.75 a gallon has led to widespread gasoline theft and a thriving black market in energy. I think this is going to end badly…maybe Venezuela bad. My wife is from Venezuela and I hear first hand accounts of what’s happening on the ground. We’re not ready for what’s coming.

    • HowNow says:

      Ian Bremmer’s “Eurasia Group” annually list the top “risks” for each upcoming year. The latest from them is here: Risk #4 is instability in Mexico. He cites the rise of an ultra-populist presidential candidate currently in the lead. If Andres Manuel Lopez Obrador wins, this may be a Hugo Chavez moment and bodes poorly for US/Mexico relations. Worse yet, and not cited in the article, is that the new U S tax law may attract corp. investment in the U S rather than Mexico because of the new, low tax rate. Trump’s hardball negotiating tactics on NAFTA and wall building may further push Mex voters into the arms of AMLO. I guess the desire (Bannon/Trump) is to create more disruption and ultimately cash in on the chaos.

  11. mean chicken says:

    Kansas City Southern hauls a lot of finished goods from Mexico, including vehicles. What are the chances our friend Buffett has his eye on this one?

  12. Shawn says:

    and who does PRI nominate for president? The former finance minister in charge of implementing the gasolinazo. Self-parody.

  13. raxadian says:

    *The reforms would lead to lower energy prices for domestic consumers as well as thrust Mexico into a more prominent position in the global hydrocarbons market, the government confidently predicted.*

    History has proven again and again that unless the state keeps some fingers on the pie, to privatize the energy sector is to make everyone but a few lose.

    • d says:

      “History has proven again and again that unless the state keeps some fingers on the pie, to privatize the energy sector is to make everyone but a few lose.”

      Very True. The smart way is to “Privatise the Administration” of the asset. With a renewable term, based on prior performance.NOT THE ASSET.

Comments are closed.