Mexico's energy overhaul
US oil industry
US oil industry raises concerns about Mexico
By Haik Gugarats /Argus
Petroleumworld 07 01 2020
US oil and gas companies are using the start of the new US-Mexico-Canada free trade agreement to raise concerns about reversals in Mexico's energy overhaul that they deem detrimental to their sector.
The agreement, which goes into effect tomorrow, does not offer explicit guarantees for protecting the historic changes that opened Mexico's energy sector to foreign participation before President Andres Manuel Lopez Obrador took office in December 2018. The pact also limited the so-called investor-state dispute settlement provisions in the existing North American Free Trade Agreement, which allowed US companies to have recourse outside of the Mexican legal system.
Some of the concerns raised by US energy trade groups — alleged unfair treatment by Mexico's regulators, permitting delays and surprise inspections that could roll back permits — can be addressed by the investor-state dispute mechanism. US energy experts say US companies can invoke Mexico's commitments for non-discriminatory treatment by its state-owned enterprises and designated monopolies.
But appealing to the White House to intervene is seen as a shortcut to facilitate resolution of the concerns, given a close working relationship between Lopez Obrador and US president Donald Trump.
US officials have acknowledged concerns raised by the energy industry. But the issue is less prominent for the administration than implementing the auto industry and labor chapters of the deal, which Washington sees as crucial for reducing its trade deficit with Mexico. The country has emerged as the US' largest trading partner after Trump started a trade war with China.
"The administration in Mexico wants to go in the direction of nationalizing energy production," US trade representative Robert Lighthizer told lawmakers recently. "Pushing back against that is something that we have done in this agreement and expect to do," he said. "To the extent we have tools, we expect to use them to require equal treatment."
Energy dominance meets energy independence
Trump and Lopez Obrador have similar energy agendas focused on boosting domestic oil and gas production. The two strategies are now beginning to clash. Lopez Obrador's promise of energy independence means reducing imports of US natural gas and oil products, while US gas exporters and refiners have relied on Mexico as a key growth market in recent years.
US industry trade groups the American Petroleum Institute and refining group American Fuel and Petroleum Manufacturers have complained to the White House of regulatory actions by Mexico City that make it difficult for US companies to obtain permits for new fuel stations, storage terminals and LNG terminals. The complaints outlined by the groups predate economic disruptions in the wake of measures introduced to curb the spread of the Covid-19 pandemic.
Lopez Obrador has noted that while US companies have a right to complain, Mexico's government is following the rules. And Mexico is not being forced to "give away petroleum or any energy assets" as part of the trade deal.
Lopez Obrador was part of the multilateral diplomacy as Trump worked to facilitate a new Opec+ oil production cut agreement. Trump's largely meaningless promise to cut US production by 250,000 b/d to make up for Mexico's inability to cut — the White House has no legal standing to order cuts by US producers — was accepted at face value by other major producers, helping seal the Opec+ deal. Trump said at the time that Mexico would "compensate" the US for the pledge, but US officials downplayed the statement.
Lopez Obrador is pushing to meet with Trump to celebrate the trade agreement's start date, but the White House has not confirmed any such event.