The Energy 202: AMLO seeks to rejuvenate Mexico's Pemex

López Obrador has pit the pragmatists against the more extreme populists. The latter group includes an agronomist close to him, a congresswoman who advised his campaign and an aging politician long devoted to keeping foreign investment out of Mexico’s oil sector.

The dividing line on energy policy has been whether you believe oil-rich Mexico can manage and finance its own state-owned energy industry or whether you believe that Mexico could use some help. Over 14 years, Mexico’s crude oil output has dropped from 3.5 million to 1.9 million barrels a day, López Obrador said last week. The country’s petroleum refineries are running at less than 40 percent of capacity.

All this is tied together with tensions between Mexico and the United States. Most of the big companies eyeing opportunities in Mexico are based in the United States. And President Trump’s insistence on gutting the North American Free Trade Agreement and his campaign to build a physical wall between the two countries has sharply increased frictions.

The outgoing Mexican president Enrique Peña Nieto had embraced reform and the opening of the energy sector.

He oversaw the change in the Mexican constitution, which since 2013 had walled off the country’s oil and gas industry and barred foreign investment in it. Only four years ago, Mexico held its first competitive round of international bidding for exploration and production contracts. Mexico has signed more than 100 of those contracts, and they are expected to ultimately attract more than $160 billion over a number of years.

The incoming López Obrador, however, spent much of his career opposing foreign investment in the state energy sector. The populist leader and his top economic aides have said he would respect the private contracts signed so far, but AMLO, as the president is known, has also pointed toward an effort to rejuvenate the state-owned oil company Pemex.

In recent days, López Obrador has said he would invest $9.4 billion in the state-owned sector, including two new oil refineries and the renovation of six existing ones. The president wants to give $4 billion to Pemex for exploration. And he wants to boost Pemex production from 1.9 million barrels a day to 2.5 million a day within two years.

All these are tall tasks, industry experts say. The construction cost of just one large refinery could range from $10 billion to $15 billion. And construction time is usually twice as long as what the new team in Mexico plans to allow, industry experts said. There are financial constraints, too. Pemex budgeted about $750 million for refineries this year. It remains unclear whether Pemex could raise that much additional money.

“I think that that is an unrealistic expectation that you can dramatically increase Mexican oil production just by telling Pemex to go ahead and produce more oil,” said Duncan Wood, director of the Mexico Institute at the Wilson Center. “It takes a long time to turn the ship around. Pemex has been going in this direction of decline for a long time. Pemex should be doing much better; I agree with that. But it will take a lot longer to get Pemex in the position where it was 10 years ago.”

More sobering for foreign investors is the energy team the new president is assembling. For the post of chief executive of Pemex, López Obrador would install Octavio Romero Oropeza, an agronomist. Guajardo described him as “a small-town politician” with no background in the energy sector. But others say that Romero Oropeza and the incoming president are very close.

As head of the state electric utility, López Obrador wants Manuel Bartlett, an 82-year-old politician who was alleged to have been linked to human rights abuses when he was in politics years ago. Bartlett has also strongly opposed private investment in the electricity sector.

López Obrador also plans to name Rocio Nahle, a 53-year-old congresswoman and former chemical engineer, as his energy minister. “Investors can be calm, we’ll respect the law,” she said in a February interview with the Wall Street Journal about the private contracts. But she added that although it was possible the new government would auction more contracts, “I doubt there will be good results.” 

Nahle has proposed to renovate the six refineries in seven months, something the energy industry views as impossible.

López Obrador's track record hasn’t soothed foreign investors. On April 11, 2008, he led a coalition of left-leaning legislators as they stormed Mexico's National Congress and barricaded themselves inside to protest then-President Felipe Calderón's oil policy, which would have allowed Pemex to work with third-party companies on technically challenging projects.

On. Oct. 31, 2014, Mexico's Supreme Court blocked López Obrador's motion to hold a binding, nationwide referendum to abolish the energy policy change.

On Nov. 23, 2015, to protest rising retail power prices, López Obrador promised to defend Tabasco residents who weren't paying their electricity bills.

The conflict over private investment isn’t just about foreign investors. In July 2017, Mexico’s energy ministry opened the onshore portion of the Burgos Basin, a shale-rich area in northeastern Mexico, for natural gas exploration and development by private companies. It was the first time private firms were offered access to the Burgos Basin for development since Pemex was created in 1938, according to the Energy Information Administration.

Private investors were also poised to play a leading role in adding renewable energy to the electric grid; those plans are on hold, too, energy experts said.

Analysts say that the incoming energy team is at odds with groups of policymakers at places such as Mexico’s Treasury Department.

“The team on energy is projecting a different message than the economic and financial team,” Wood said. “The economic and financial teams are projecting openness and saying that Mexico will continue with orthodox policies.”

Wood said the Mexican treasury was looking forward to the benefits from private contracts, such as taxes. “There is a tension in the new administration that needs to be resolved if we are really going to know what its policies are.”

— Another punt for flood insurance: The Senate voted 86-12 to approve a short-term extension of the federal flood insurance program, once again delaying long-term changes to the program that covers more than 5 million households, The Post’s Mike DeBonis reports.

The bill, which was headed to the president’s desk ahead of the Wednesday deadline, marks the seventh time lawmakers have passed a stopgap, this time extended authorization through Nov. 30. “Lawmakers have been unable to move forward on changes to the program nearly a year after a string of hurricanes — Harvey, Irma and Maria — highlighted the fiscal stress on the program,” DeBonis writes. “Claims in 2017 exceeded $8.7 billion, with more claims from last year’s storms expected to be filed in 2018. The National Flood Insurance Program has more than $20 billion in public debt on its books; an additional $16 billion was canceled last year to avoid a $30 billion ceiling on the program’s borrowing.”

— Trump to name top science and tech adviser: Trump is set to nominate an expert in extreme weather from the University of Oklahoma to fill the top science and technology adviser role in the White House, a spot at the head of the Office of Science and Technology Policy that has remained vacant since the start of the administration, The Post’s Tony Romm reports.

Meteorologist Kelvin Droegemeier also aided the National Science Board in the George W. Bush and Obama administrations. “His selection drew early praise from the scientific community Tuesday,” Romm writes. “Yet Droegemeier still may have to overcome a tough Senate confirmation process, given that Democrats and Republicans have regularly locked horns over many of Trump’s nominees. This time, some Democrats could turn Droegemeier’s selection into a moment to fight the president on his energy and climate policies, more than a year after Trump announced plans to withdraw the United States from a major international carbon-reduction treaty.”

— Wheeler in the hot seat: Ahead of acting EPA administrator’s first testimony in Congress today since assuming the role, the New York Times reports on “fresh details” about Wheeler’s lobbying activity. The report includes specific details from Wheeler on his most recent work as a coal lobbyist, work on behalf of Wisconsin-based cheese giant Sargento Foods, work for utility company Xcel Energy, for uranium company Energy Fuels Resources, and for coal magnate Robert Murray, who paid Wheeler’s former lobbying firm $2.7 million over eight years, per the report. Wheeler is expected to be grilled on these relationships on Capitol Hill on Wednesday.

— EPA issues voluntary recall of trucks: The EPA announced what it called the “largest voluntary truck emissions recall to date” on Tuesday, recalling half a million trucks with faulty pollution controls made by Indiana-based Cummins Inc. The recall affects medium-and heavy-duty trucks for model years 2010 to 2015. The issue was discovered through tests for emissions standard compliance, which are conducted by the EPA and through the California Air Resources Board.

— Steyer’s nine-figure push: Billionaire liberal activist Tom Steyer is set to become the largest individual source of campaign funding bolstering Democratic candidates in 2018. He’s planning to spend $110 million in 2018 to expand the operations of his political organizations, NextGen America and Need to Impeach, as well as on efforts to fund clean-energy initiatives in Arizona and Nevada, Politico reports. “In just the last decade, Steyer skyrocketed to become the Democratic Party’s biggest donor, only to leave that behind to invest instead in his own organizations and causes, to the irritation of party leaders — particularly those who worry that he’ll hurt them politically by talking up impeachment,” per the report. “That pushback seems to encourage him, while also encouraging talk that he’s interested in a 2020 presidential run, though he tends to push back on that by pointing out that many people first interpreted his spending in this cycle as the prelude to a 2018 campaign for California governor or senator.”

— Man, it’s a hot one: California's Death Valley is set to post yet another record for the hottest month ever measured on the planet after doing so last year. Preliminary data shows that Death Valley temperatures have averaged 108 degrees, a half-degree higher than last year’s July average, which broke a 100-year record, The Post’s Ian Livingston and Jason Samenow report. “This year’s exceptional temperature extreme at one of the planet’s hottest locations puts an exclamation mark on a month in which record-high temperatures have fallen on every continent in the Northern Hemisphere,” they write.

— California is burning: Across the state, there are more than 12,300 firefighters battling blazes that have burned through 280,000 acres, the Los Angeles Times reports, calling it “the new normal.” “The Carr fire in Shasta County had burned 112,888 acres by Tuesday evening and crews increased containment to 30%,” per the Los Angeles Times. “It has destroyed at least 1,378 structures — more than last year’s Thomas fire in Southern California — making it the sixth most destructive and the 13th deadliest wildfire in California history, according to state figures.” There are 17 total large wildfires still blazing, and of the two largest, fire crews have contained the Ranch and River fires in Mendocino County the least (they are just 10 and 12 percent contained, respectively).

Also: Take a look at detailed maps of the massive Carr blaze, including the one above, via The Post's Lauren Tierney, Kate Rabinowitz and Aaron Steckelberg here. 

— The road ahead for Tesla: The electric automaker is pulling out all the stops as it continues to push the production of 5,000 or more a week of the Model 3 electric sedans, including sometimes flying in workers from out-of-state service centers or its solar business in an effort to place more workers in its vehicle and battery plants. The goal is necessary for Tesla to become profitable, but “shifting employees to work in the factory strains budgets and other business units, according to seven current and former employees,” CNBC reports. “Tesla acknowledged the practice, and said it has also done this in the past, especially in big production pushes near the ends of quarters.”

Setting the scene: The “controlled chaos” at the Fremont, Calif., Tesla factory on a recent day was “a bit more relaxed than usual,” The Post’s Drew Harwell reports in this dispatch from the factory. “Normal for the youngest, most erratic U.S. automaker has always looked like insanity anywhere else,” Harwell writes. “The Silicon Valley giant on Wednesday will report earnings that analysts expect could include $900 million of losses in the second quarter, a time of factory disasters and internal paranoia that Musk, Tesla’s billionaire chief, has described as ‘the most excruciating, hellish several months I’ve maybe ever had.’… But as investors scrutinize how quickly cash is burning at Tesla… another risk is also becoming more apparent: whether the company’s frenetic pace is leading to widespread burnout for Tesla employees — and, perhaps, even Musk himself.”

— Winding up renewables: Starting in 2020, California will begin importing power from a wind farm in New Mexico, part of “two 15-year power-purchase agreements that will contribute to the state’s clean-energy goals,” Bloomberg reports. A 200-megawatt Corona, N.M., wind project will deliver power to Santa Clara, Monterey, San Benito and Santa Cruz counties.

— Green goals: Chicago-based Kraft Heinz Co. said it will make all of its product packaging entirely recyclable, reusable or compostable by 2025, a move that will shift the well-known look of many of its products, including Heinz ketchup packets, Capri Sun juice pouches and Kraft Singles cheese slices. “Kraft Heinz isn’t sure yet how it will address non-recyclable and non-reusable packaging, like ketchup packets,” Bloomberg reports. “Heinz redesigned the 50-year-old squeezable foil-and-plastic packet in 2010 to a larger ‘dip & squeeze’ cup, which reduces waste but still can’t be recycled due to its film cover. New packaging will have to balance sustainability with requirements for food safety, shelf life, distribution, cost and appearance, [head of global corporate reputation Caroline Krajewski] said.”

Today

• The Senate Environment and Public Works Committee holds a hearing on “Examining EPA’s Agenda: Protecting the Environment and Allowing America’s Economy to Grow."

Coming Up

• The Women’s Council on Energy and the Environment holds a discussion on the role of science in public policy on Thursday.

— A Shark Week heist: A young 16-inch-long female horn shark, known as Miss Helen, was found alive after she was stolen over the weekend from one of the San Antonio Aquarium’s interactive shark touch pools by suspects who used a net, a bucket, a blanket and a baby stroller, The Post’s Allyson Chiu reports.