Photo: Rebecca Blackwell, STF
WASHINGTON – After decades of banishment from Mexico’s oil and gas fields, American companies like Exxon Mobil and Chevron are becoming a presence there again.
But just four years after Mexican President Enrique Pena Nieto invited foreign companies into his country to help modernize its struggling energy industries, the rise of populist politics in Mexico is driving concerns about the future of reforms that ended the national oil company’s monopoly and opened markets to competition.
With the U.S. and Mexican governments renegotiating the North American Free Trade Agreement, oil and gas companies, as well as the Pena Nieto administration, are pressing for protections in the treaty against any future efforts in Mexico to push out foreign oil companies.
“It’s a bulwark, should Mexico change their minds on the reforms,” said David Goldwyn, a former State Department special envoy during the Obama administration who now heads the Atlantic Council’s Energy Advisory Group, a think tank. “If someone wants to get nasty, this could go wrong a lot of different ways.”
The front-runner to succeed Pena Nieto in next summer’s presidential election – the leftist former mayor of Mexico City, Andres Manuel Lopez Obrador – has been a vocal critic of Pena Nieto and said if elected he would hold a referendum on the energy reforms.
Obrador, who has criticized President Donald Trump, has also promised to take a harder line in trade negotiations between the two countries.
The statements have left U.S. officials and industry leaders scrambling to hedge against a change in relations.
“He has generally been supportive of NAFTA, but then in the next breath he will say he will review everything under this administration,” said Antonio Garza, an attorney and former U.S. ambassador to Mexico. “There’s enough menace in the ‘but’ for people to take pause.”
During a news conference earlier this month, Mexico’s chief trade negotiator, Kenneth Smith, said the Pena Nieto administration was seeking to write its energy reforms into NAFTA. Such a move would effectively make if far more difficult for Obrador to change course on energy, forcing him to pull out of a treaty that has helped drive the development of factories across the border and inland regions of Mexico.
“We’re working in this sense, analyzing all of the elements that need to be included in the energy discussion to reflect the reform Mexico established,” he said, according to the Reuters news agency.
Mexico nationalized its oil industry in the 1930s and the state-owned Petroleos Mexicanos, or Pemex, held a monopoly for three-quarters of a century. But Pemex in recent years became burdened by debt and falling production, unable to invest in technology needed to increase output in aging fields and exploit new ones.
Since passing market reforms in 2013 with the aim of attracting foreign investment, Mexico has reduced the role of Pemex and steadily gained ground in modernizing its oil and gas sector. After early struggles to lure foreign companies, recent auctions have drawn competition between U.S. and European oil majors looking to tap fields in Mexican waters.
In March, Italian firm Eni announced a large discovery in Mexico’s shallow-water Gulf. Four months later, a consortium including Houston-based Talos Energy announced it had what was believed to be the fifth-largest discovery in the world over the previous five years.
“Whatever they can do to strengthen the general impression of the solidity and irreversibility of the energy reforms, the oil companies want to see that happen,” said George Baker, a Houston energy consultant and longtime publisher of the news-letter Mexico Energy Intelligence.
Last month, three trade groups representing oil and gas companies in North America, including the American Petroleum Institute, released a paper urging the NAFTA negotiators to preserve provisions within the trade agreement that allow companies operating in foreign lands the right to third-party arbitration and restrict the ability of governments to seize foreign investment.
Stephen Comstock, director of tax and accounting at API, said he sees the protections “in there as essential to supporting continued investment in Mexico, preserving our opportunities in case there are any problems.”
Trump himself has been critical of such provisions, aligning himself with workers’ unions, which maintain such measures allow corporations the ability to challenge the laws of the countries they’re operating in, including government policies protecting workers and the environment, if they are deemed harmful to the bottom line.
But that stance runs afoul of many free-trade proponents, some even within Trump’s own Cabinet.
“There’s a Trump position, and there’s a Ross position. They’re still arguing over it,” Goldwyn said, referring to Commerce Secretary Wilbur Ross. “It’s an odd situation where you have the U.S. industry aligned with the Mexican government.”
A spokesperson for the U.S. Trade Representative declined to comment.