We’ve had several Mexico energy projects on and off throughout the years, both before and since the 2012 Energy Reform. Our first exposure was the CFE gas pipeline tenders. We supported a Mexican infrastructure company in identifying and reaching out to potential partners to bid on those contracts with. Ten years later, those gas pipelines now mean that Mexico gets 96% of its natural gas from US imports, going into more than half of Mexico’s electricity supply.

At the time it seemed like a pretty whole-hog bet on the CFE’s part, or a wonderful example of structural North American cooperation, or both. Mexico really needed to, and still needs to, lower its energy costs. So we realized the CFE going “all-in” was due to the lowered cost of gas thanks to US fracking. Indeed, Mexico’s gas costs are pegged to the cost of gas in the US, in dollars. However, focused on our mission of helping the Mexican infrastructure company find a partner, we didn’t stop to look at the macroeconomic picture until after the reforms went through.

From 2013 on out, in keeping with the reform and the interests of our clients, we were working with renewables companies as much as companies in the fossil fuels streams, and we started thinking in terms of decentralized energy supplies, grid stability, arbitrage and other frameworks. We didn’t cease to be impressed at Mexico’s willingness to depend on US and Canadian natural gas transmission, but we didn’t really question it either.

Last year, we did a deep dive for a Colorado engineering firm that was interested in the longer term outlook of renewables in Mexico, especially given questions raised about it by the current federal administration in Mexico. For ourselves, thanks to conversations with companies, analysts like Arturo Carranza, and our own analysis of several sources, we arrived at an understanding of the AMLO administration’s rationale, as explained by Rocio Nahle in particular, which focuses on longer-term energy stability for Mexico via correcting inefficiencies not just in production but also in transmission. After all, the 2012 Reform did seem to have passed really easily and quickly in Mexico’s legislature; in our experience, it’s healthy to question policy that appears not to have been subject to very rigorous debate. It’s not outrageous to consider that the Reform could have left out some key points for ensuring Mexico’s electrical grid operates efficiently.

It made sense, except for the appearance, which AMLO is apparently happy to own, of spurning the private investors poised to help diversify Mexico’s energy sources. Our conclusion at the time was that market fundamentals meant most of the private renewables investors should stick around. They should, in their financial due diligence, have budgeted for at least some of the changes being enacted by the government. Whether they did was confirmed in some of the subtext we got from our industry conversations and analysis last year. Many of the investors are foreign and are looking to Mexico’s Supreme Court as well as international treaty terms, including USMCA, to help protect their ideal operating scenarios. If they do decide they can remain despite the cost of adapting to regulatory changes, they should be giving Mexico not just more domestic energy choices, but also choices from a stronger variety of sources, with a more diverse spectrum of transmission and storage options. Probably not as quickly as the CFE gaslines were installed, but our hope is that what Mexico is losing in speed right now, it makes up for in a more rational transmission landscape in the future.