The coastline of Tabasco, a waterlogged and oil-rich state on the Gulf of Mexico, is a tangle of mangroves and pipelines belonging to Petróleos Mexicanos (Pemex), the state-owned hydrocarbons company. Its new $17bn (£13bn) Olmeca refinery at Dos Bocas, in President Andrés Manuel López Obrador’s home state of Tabasco, symbolises his commitment to reviving Pemex and making the country energy self-sufficient – even if it means going all-in on oil.
But storms, floods and rising sea levels have put Mexico’s coastal life at risk. “With climate change, the floods are getting out of control,” says Lilia Gama, an ecology professor in Tabasco. “They last longer, spread further [and] accumulate in certain places. And this is no longer necessarily enriching the soil as it used to – it is causing the vegetation to rot.”
Tabasco and Pemex are intertwined. Pemex is in 14 of its 17 municipalities, with installations covering 12,000 hectares (30,000 acres) and underground pipelines running for 5,000 miles (8,000km). Roughly half of Mexico’s oil comes from Tabasco, and half of the state’s GDP comes from oil.
But for Mexico, Pemex is far from the titan it used to be. Since 2019, every peso it received from the government has returned just 1.4 pesos. The figure from 2015 to 2018 was 5.7 pesos.
Earlier in its history, Pemex’s contribution was greater still. “In its heyday, Pemex provided practically half of all state revenue,” says Leonardo Beltrán, a former deputy energy secretary and board member of Pemex.
In part, this reflects falling production. Once a top-five oil producer through Pemex, Mexico has slipped out of the top 10 in the past decade.
Amid the climate crisis and the recent oil race in Latin America (involving countries such as Brazil, Guyana, Suriname, Venezuela, Argentina and Ecuador), Mexico finds itself at the rear, hoping to recover lost ground in the increasingly competitive global oil and gas market.
The decline of Mexico’s oil industry is closely tied to its era of dependence on fossil fuels. Previous governments used Pemex as a “cash cow” instead of introducing broad fiscal reforms in Mexico. This deprived Pemex of capital to maintain and develop assets, pushing it to borrow.
Today, Pemex is the world’s most indebted oil company. Its debt is roughly $102bn – about 7% of Mexico’s GDP. Though exploration and production remain profitable, others activities – especially refining – are loss-making. Credit agencies have downgraded Pemex, making borrowing more expensive for the company.
Pemex also carries colossal commitments in wages and pensions.
Under Enrique Peña Nieto, Mexico’s previous president, the plan was to shrink Pemex’s role with a constitutional reform that removed its monopoly on the country’s oil resources and opened the energy sector to greater participation by private companies.
“The idea was to have less refining, more private investment, and for Pemex to take on less risk in exploration,” says Carlos Ramírez, a consultant at the company from 2006 to 2009. “The intention was to let the private sector take a bigger role but without letting Pemex disappear.”
This was anathema to López Obrador, who believed that state-owned companies should extract Mexico’s hydrocarbons and that the country should strive for self-sufficiency instead of exporting crude oil and importing refined petroleum products.
“[López Obrador] grew up in Tabasco when Pemex was everything – for the state and the country,” says Ramírez. “The culture he grew up in was one of hydrocarbons.”
To revive Pemex, López Obrador cut its debt burden, pushed it to increase oil production and built the Dos Bocas refinery.
Since 2019, this has entailed roughly $53bn of public money and $25bn more in tax cuts, helping Pemex reduce its debt while freeing up money to invest.
Oil production collapsed by almost half during the previous two governments. While the rate of decline has begun to level off, the promised increase from 1.7m to 2.5m barrels a day has not materialised.
However, the investment in refining is the most contentious element. Instead of exporting the crude oil pumped by Pemex, the government wants it to be refined in Mexico and then sold to domestic consumers as, for example, diesel and petrol. Such self-sufficiency could reduce Mexico’s exposure to volatile energy prices and allow it greater geopolitical independence.
Mexico has six ageing refineries operating at about 50% capacity, which is far from meeting domestic demand for refined products.
The new refinery in Tabasco could fill some of the gap but it is behind schedule and twice over budget. Pemex most recently said it would start operating last month, but analysts believe the end of this year or 2025 is more likely.
Yet whatever Mexico gains in self-sufficiency when Dos Bocas comes online, Pemex may still lose revenue for not exporting crude, and it is unclear how much it will make selling refined products in Mexico.
“For Pemex, this may imply a decrease in its income, putting it in an even more difficult situation,” says Diego Rivera Rivota, a researcher at Columbia University’s Center on Global Energy Policy. “Is it worth it? It’s hard to see the financial case.”
López Obrador’s pursuit of self-sufficiency and a greater state role has also hit Mexico’s investment in renewables.
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In theory, CFE, the state electricity company, could achieve those goals by investing in clean energy. In practice, however, very little has happened and the government has also limited private investment.
The government’s Plan Sonora for solar power envisioned five photovoltaic power stations across the state of Sonora in northern Mexico. So far, with just one solar farm of 120MW capacity up and running and another 300MW farm scheduled to come online last month, Mexico has 10.8GW of solar photovoltaic capacity out of 88GW of total installed generation capacity.
Aside from refurbished hydroelectric plants, it is the only renewable energy capacity built by CFE under this government.
Meanwhile, private solar and wind projects have had their permits revoked or blocked, and the government has held no new auctions for electricity provision.
“The priority is to centralise all aspects of energy in Pemex and CFE, even if it is more expensive,” says Adrian Duhalt, a researcher at Columbia University’s Center on Global Energy Policy.
While renewable energy production stalled, with only 1,500MW of clean energy added, CFE brought 7,500MW of new fossil-fuel capacity online during this administration.
These are fed by Mexican oil and coal, and US natural gas, imports of which increased by 8% last year to a new record. Overall, nearly 80% of Mexico’s energy comes from burning fossil fuels. “I believe the net result of the pursuit of [energy] sovereignty will be negative. And the opportunity cost has been enormous,” says Ramírez, referring to the potential benefit lost by choosing another option.
Neither Pemex nor the energy ministry responded to requests for interviews.
The question now is how Claudia Sheinbaum, the climate scientist and close ally of López Obrador, who won a landslide victory in the 2 June election, will alter the course of Mexico’s energy policy once she takes office on 1 October.
Sheinbaum was elected on a platform of continuing with López Obrador’s policies, committing to back Pemex and state companies’ leading role in the energy sector. She appears to share López Obrador’s focus on self-sufficiency.
Sheinbaum has set a target for Pemex to increase production from 1.5m to 1.8m barrels a day.
There are also reports that her government could absorb $40bn of Pemex’s debt. This would buy Pemex time and free up more capital for reinvestment, but with no guarantee that the state firm would address the underlying business problems.
At the same time, though, Sheinbaum has suggested Pemex expand its remit to include investment in renewables and mining for lithium, a crucial element of electric batteries. She also pledged to spend $14bn on clean-energy projects.
Whether Pemex and the government will have the fiscal room to do all of this is unclear. There could come a moment when Pemex is no longer even a net contributor to the state, with public money that could be spent on other things, such as cheaper solar energy, used instead to prop up the unreformed oil company.
But Pemex is a popular institution with great historical symbolism, stemming from the nationalisation of Mexico’s oil resources in 1938, and the trade-offs involved in supporting it are rarely made clear.
“Here in Tabasco, the economy is based on oil. Nothing approaches it,” says Gama.
“The greatest resistance [to the new refinery] comes from environmentalists, and not all of them live here,” the professor adds. “The people who live here are happy with it. And this state is with the president.”
