Based on the grim financial outlook for Pemex in 2024, we anticipate that the federal government will fall short in its goal to increase fuel and crude oil production to intended levels. In other words, the company’s capacity to enhance its operative performance will be affected by 1) a limited scope to boost total capital expenditures, which in 2024 will be roughly 49% lower than in 2023 (Figure 8), and 2) the absence of a long-term scheme to cope with its financial obligations. From July 2023–June 2027, Pemex is expected to pay 51.6% of its financial debt, meaning it will require additional capital injections throughout that period.
With respect to Pemex’s refining operations, Mexico’s proposed 2024 budget considers a reduction of approximately 41% in capital expenditures compared to 2023. In that context, the outlook for Pemex to boost fuel production in its existing refineries, a core objective of López Obrador’s energy ambitions, looks rather complex. But production figures could be increased, given that for him, it is more meaningful from an electoral perspective to complete the construction of the Dos Bocas refinery in his home state.
At the time of writing, it remains unclear if, thanks to the extraordinary resources allocated through Mexico’s Secretariat of Energy (SENER), the Dos Bocas refinery will be fully operational in 2024. Considering Pemex’s record in managing its construction, budgeting, and other domestic refineries, the start of operations will likely be deferred to 2025.
In short, the risks associated with Pemex’s financial and operative shortcomings will certainly reverberate beyond 2024. The next administration will deal with a company plagued with inefficiencies, which will prevent the company from becoming profitable in its own right in the long run.
The question is: What is the plan for Pemex and the energy sector at large? In the months leading up to the June 2024 presidential election, Mexicans will be exposed to different proposals from the candidates. While the MORENA-led coalition cannot afford to propose a policy shift, opposition candidates will be inclined to limit the influence of Pemex and CFE in their respective markets. We anticipate a highly divisive discussion around energy issues in 2024.
The power sector faces its own set of challenges. For Mexico to take full advantage of the geographical reconfiguration of supply chains triggered by the U.S.-China trade dispute, the deployment of renewables and the expansion of transmission lines must gain momentum. In light of the 2024 election, however, we expect the official narrative from MORENA and its presidential candidate to remain centered on the importance of fossil fuels.
Nonetheless, power demand increases and a huge dependence on natural gas imports are both set to persist in 2024 and beyond. With that in mind, it is premature to dismiss the possibility that Mexico’s new president will encourage a greater share of renewables in the country’s energy mix.
