Could Sheinbaum's Landslide Victory in Mexico Impact Natural Gas?

By Christopher Lenton

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Published in: Mexico Gas Price Index Filed under:

Mexico’s Claudia Sheinbaum swept to victory in the general election on Sunday, becoming the nation’s first female president in a historic vote that saw her Morena party strengthen its grip on the country’s political establishment.

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“This is the recognition of the people of Mexico of our national project,” Sheinbaum said in her victory speech. “For the first time in our nation’s 200-year history, I will be the nation’s first female president.”

Left-leaning Sheinbaum trounced her main opposition Xóchitl Gálvez by 30-plus percentage points. The victory margin exceeded most polls, even as she was the clear frontrunner in the months leading up to the election.

Turnout was calculated at about 60% of registered voters and the number of votes that went to Sheinbaum may be the highest in the nation’s democratic history.

Notably, Morena gained ground in the lower house, where it now has a two-thirds majority. When the vote count is done, a similar composition is expected in the senate, according to early results. That could mean Morena would have the power to change the nation’s constitution. 

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Mexico’s peso slumped overnight against the U.S. dollar as investors reacted to the news.

Fourth Transformation, Version 2.0

The Morena party was founded by President Andrés Manuel López Obrador. The party’s commanding presence across Mexico’s 31 states now resembles the dominance once held by the Partido Revolucionario Institucional (PRI) which held power over the country for most of the 20th Century.

Sheinbaum promised to build the “second storey” of la cuarta transformación, or the fourth transformation political project started under López Obrador. Some of the pillars of the program include consolidating state oil and gas firm Petróleos Mexicanos (Pemex) and state utility Comisón Federal de Electricidad (CFE) as champions in the energy sector. 

The president-elect, for example, has said that CFE would generate 54% of Mexico’s power in her administration.

In her victory speech, Sheinbaum echoed many of López Obrador’s pledges, including a commitment to not raise gasoline and electricity prices. 

The bigger question remains around how Sheinbaum might differ from her predecessor and policial mentor. Sheinbaum has a doctorate in energy engineering and is expected to bring a more pragmatic approach to running the nation’s energy sector.

During her victory speech, Sheinbaum vowed financial discipline and austerity, and autonomy for the central bank. “We will respect business freedom, and we will promote and help with private investment and foreign investment,” she said.

Changes For Natural Gas?

In the natural gas sector, “CFE will continue anchoring and developing projects,” Mexico City-based analyst and business consultant Gonzalo Monroy told NGI’s Mexico GPI. He said there would not be many “privately led projects,” but that would be a “great scenario” for firms such as Engie SA, Sempra, or TC Energy Corp. These companies have set up partnerships with Mexico to develop large-scale natural gas pipelines and other projects.

Sheinbaum has yet to nominate an energy minister, but there are suggestions that certain posts might carry across administrations.

Whether Sheinbaum would proceed with more controversial reforms planned by López Obrador, such as a bill that would eliminate oversight agencies including energy regulator Comisión Reguladora de Energía (CRE), is unclear.

There would almost certainly be more renewable energy in the next sexenio, or six-year term. Sheinbaum served on the United Nations Intergovernmental Panel on Climate Change and has vowed more solar and wind development.

“More renewables, yes, but the pace and deployment through the state, namely CFE,” Monroy said. “As a consequence, CFE will lead and determine if Mexico has an energy transition if any.”

More U.S. Gas

One thing is almost certain: Mexico’s reliance on U.S. natural gas imports for its industry and electrical sectors is only set to grow. Mexico’s imports are soaring this year, hitting the 7 Bcf/d mark regularly and prior to the high demand summer months. 

They are almost double what they were when López Obrador came to power and projects under development coupled with an industrial boom led by manufacturing companies setting up shop in Mexico indicate increasing natural gas demand.

Sheinbaum’s administration could be helped by natural gas prices that are lower today than they were when Mexicans last went to the polls in 2018. NGI’s Bidweek price at the Henry Hub benchmark for May, 2018, was $2.820 versus $1.610 for May of this year.

Mexico generates 65% of its power from natural gas and most of it comes from the United States, in particular Texas.

When asked whether Mexico under Sheinbaum would continue this natural gas trade relationship, Monroy had one word: “Absolutely.”

Sheinbaum assumes the presidency on Oct. 1. During his press conference Monday morning, López Obrador said once his tenure is over, he plans to retire “and I won’t engage again in any public activity.” 

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Christopher Lenton

Christopher joined NGI as a Senior Editor for Mexico and Latin America in November 2018. Prior to that, he was a Senior Editorial Manager at BNamericas in Santiago, Chile. Based out of Santiago, he has covered Latin American energy markets since 2009 as a reporter, editor and analyst. He has an MA in International Economic Policy from Columbia University and a BA in International Studies from Trinity College.