 Okay, we're back. We're live in the 3 p.m. block. This is Energy in America, and Lou Pulirisi has put us in touch with Emily Medina of E-Princk, and we are so happy to have her on the show. Hi, Emily. Welcome to the show. Hi, Jay. Thanks for having me. Absolutely. So we're going to talk today about something that you are familiar with as a member of E-Princk, and that is energy from and with Mexico. Let me just say some things that I learned about Mexico recently from talking to our correspondent, our host, Carlos Suarez, and he was talking about what's going on in Mexico vis-a-vis all these agreements that Mr. Trump has suggested we have made, or he has made, whether in public or in secret. And that's got to have an effect, according to Carlos, on our relationship with Mexico because, you know, this country is intimidating Mexico. I suppose it has always intimidated Mexico at a certain extent, but, you know, the fact is that we need a good foreign policy with Mexico. We need to be friendly with Mexico. Mexico is an important neighbor, just like Canada, and we need to help build Mexico and help trade with Mexico and have a very robust economic relationship and social relationship and diplomatic relationship with Mexico, which we seem to have been, we've lost sight of that recently. So you were going to talk to us about energy in Mexico. And I recall, I think from Lou, that it goes both ways. We sell energy to Mexico, and Mexico sells energy to us. Can you describe how that works, Emily? Sure. Yes. So Mexico and US have a very strong trade relationship in, across many sectors of their economy. If we look at Mexico's relationship with the US in the energy sector, we can see that the relationship is in both ways. So Mexico right now imports 60 percent of its natural gas from the US. So this is a huge quantity of gas that flows from the US to Mexico. And it helps power our homes, and it helps manufacturing, the manufacturing industry, and it helps Mexico's economy overall, because we are able to receive affordable energy prices from the US. Right now, Mexico's energy production is in decline. Pemex hasn't been able to produce natural gas and oil at the rates that it was producing in the past. So what is happening? So the reason for the decline in Pemex oil and natural gas production is due to the fact that Mexico had a monopoly over its energy sector for 80 years. So by having this monopoly, Pemex was the only competitor in Mexico's energy industry. This led to a lack in uninvestments on Mexico's energy infrastructure. It led to a lack of innovation and competitiveness. So the Pemex monopoly was in place since 1938. And that was about gas, so that was about oil, right? It was about oil and gas, since the production of oil helps Mexico get associated gas. However, the gas that we receive from the United States is different in its composition and it allows us to inject it into CFE's power plants, which help power and help meet all of Mexico's electricity demand. So we sell power plant type fuel to Mexico, but it's not the same product that Mexico sells to us, right? Yes, it's not the same product. So Mexico mainly exports crude oil to the U.S. This benefits the U.S. energy industry because it allows their refineries to operate at an optimal capacity rate. Without the Mexican crude, it will be harder for the U.S. to maintain the optimal capacity rates for its refining industry. Okay, but now Mexico is not able to produce that gas at a favorable rate. So what happens when the cost of producing that oil and gas or export to the United States goes up? What happens when the price goes up? Could you repeat that question? What happens when the price of the oil and gas products that Mexico sells to the U.S. increases? What kind of problems does that create? Well, it creates a lack of market for Mexico's energy product. However, giving the decline in Mexico's energy product, it is mainly being absorbed by Mexico in and of itself. So this means that Mexico, on one hand, has a declining energy capacity and energy production. And at the same time, it has a growing demand. So we are not being able to produce at the rate that we are consuming. And that's why the energy trade with the U.S. is so important for Mexico. Because right now, we are dependent on the U.S. to satisfy 60% of our natural gas demand. Is the American prices better than you could get in Mexico? Yes, definitely. The U.S. Shell Revolution has caused natural gas prices, particularly in the Permian Basin, to at some point become negative prices. So when this happens, Mexico is definitely the primary market of the U.S. and Shell gas production. So the problem used to be that Mexico wasn't able to absorb as much U.S. natural gas as it would have liked to. Because although there is an increasing demand growing at three percent, electricity demand growing at three percent annually, the decline in production in Mexico, like I said, is not able to feed that demand. So it's sort of like a win-win in terms of the relationship with the U.S. and Mexico, because the U.S. is producing increasing amounts of Shell gas, and it is having trouble getting its product to market. And the main reason, or one of the main reasons is that its LNG infrastructure is still under construction, and it won't be until mid-twenties, mid, so like around 2025, there we're going to see more LNG exports from the U.S. to other continents and other countries. So right now the benefit that Mexico has in getting access to, as you can say, cheap and affordable, cheap and clean natural gas, is that it is able to get most of this natural gas through pipelines. So Mexico has increased its pipeline capacity over the last years. It's double its capacity intake, and this allows larger quantities of natural gas to be able to be distributed throughout Mexico. So what does this mean in terms of the consumer? My utility bill, which is presumably done with quantities of American gas product, is it going up? Is it going down? If I have a business, how am I affected? If I'm buying gas directly, how am I affected? If you're buying gas directly in the U.S., right? No, in Mexico. In Mexico. In Mexico. So if you're buying gas in Mexico, definitely with larger imports of natural gas from the U.S., there's a price reduction in our electricity bill. And there's a perfect example of how lack of natural gas in some areas of Mexico lead to higher electricity prices, in comparison to the states in the North who are able to absorb larger quantities of natural gas because of the geographic proximity to the U.S. So some areas in the south of Mexico, for example, Yucatien, have a harder time getting access to natural gas from the U.S. because there's not the infrastructure that you have in other areas of the country. However, there's been increased efforts since the energy reform was passed to actually build that infrastructure that is needed to flow natural gas from the U.S. to the southern Mexico. So Emily, when you talk about infrastructure, I guess you're talking about gas pipelines. I guess there must be natural gas pipelines running across the border between the U.S. and Mexico. And I guess there must be gas pipelines running all the way from north to south in Mexico, am I right? Yes, exactly. So there was a lot of government efforts to increase the infrastructure capacity that goes and that connects the U.S. to Mexico. So those cross border pipelines were the first in place. And the other areas of the country are still being, the other infrastructure throughout the country still being built out as of today. Actually, yesterday there was just an announcement that the pipeline that goes from Texas to Tushpan, Veracruz, was just constructed in final finalized construction after an eight month delay. So this pipeline was built between Yanova and TransCanada. And the fact that it's now built is great, speaks to the success of the energy reform. And we definitely are going to need more of these types of projects to be able to distribute natural gas throughout the country more efficiently. I take it that where this goes is that Mexico needs natural gas from the United States. And Mexico ideally would like to sell more product to the United States, except it's got a problem in being able to produce enough to meet that need at a reasonable price. So I have two questions that flow from that. What is Mexico, what can Mexico do? What is it doing about dealing with this monopoly problem you described in order to generate more gas and oil to sell to the US? Because it sounds like that would be in Mexico's best interest to do that. That means funding other oil and gas companies, recapitalizing them, somehow supporting them and giving them incentives to create competition in the marketplace. I don't know, what can be done? And what is the Mexican government doing to permit this to flow freely? Absolutely. So Mexico's energy reform was passed in 2013 and it was intended to enhance Mexico's energy model to promote energy security throughout the country and to incentivize private sector participation for the purpose of boosting energy production in the country. So this energy reform right now has taken a turn in direction with the new administration. So Andres Manuel López Obrador has a very different view from the previous administration. He's not doing it then. He has not laid solid energy policy as of today and he's been in office for six months. So he's stopped and canceled the oil auctions as well as and he's also banned fracking in the country. Does he have a good reason for that? I mean it sounds like it's off policy, what is his justification for that? So Andres' agenda follows the ideological approach to energy sovereignty. So although he has a clear agenda for making Mexico almost great again, like this Logan used in the US. Oh, that phrase tears my heart. Yeah, I agree. So although he has this energy sovereignty view and he wants to make Mexico energy self-sufficient in a way, there's still not a direct plan as to how to achieve that goal. So one of his only policies or few policies in energy is to build an eight billion dollar refinery in his home state of Tabasco. So for me what I'm getting out of his energy... Do you say in his county? In his county? Yes. It sounds like slightly corrupt but that's just my reaction. Yeah and the way that the project has been carried out has been, it's raised a lot of questions. Giving that the companies who are specialized in building refineries held an assessment that took into account the timelines of the government set for the build out of this refinery and the amount of... and the costs. And what the specialized companies are saying is very different from what the government is saying that... Well certainly it complicates an already complicated situation because you know you have the problem that the legislation a few years ago was intended to resolve but it didn't get resolved and then you have the problems that Trump is creating with his threats of tariff and his demands on Mexico which are unrealistic at the kindest. And what I get out of this is that Mexico has a pretty hard road to hoe here in order to get to an optimal situation and then on top of that we have these tariff threats and these meaningless undiplomatic exercises going on between the United States and Mexico. How are we going to get to a good place here? How are we going to get to that model that you spoke of earlier about you know both countries are selling energy to the other. There may be different products but there's an exchange there and it's the way things should be between neighbors. That's the way but it sounds like there are obstacles to getting there. Am I right and can we get there? What do we do? Yeah no exactly and I think I mean the opening of the energy sector in Mexico with a huge step for Mexico and a huge step in the right direction in order to integrate the U.S. and Mexico's energy sectors more tightly. So I mean right now the best approach would be for the current government for AMLO to continue the policies and continue the projects that and the policy frameworks that was established on the energy reform. So instead of dismantling it to and instead of increasing the control of CFE the utility state-owned company and Pemex who used to both be the state monopolies of Mexico's energy sector. So instead of giving power to those old monopolies to break the monopolies and to allow for foreign direct investment and to allow for the private sector participation that is needed to better and more efficiently integrate both Mexico's and U.S. energy sectors. So I think this is it's not all bad. I mean I think Mexico right now is going through a little it took a step back with the current administration but I think that what happened after the energy reform is not going to go away with the current and the in the next six years. I think it's going to slow the pace with the current administration but I think the the foundation is there for more cooperation between for more cooperation to happen between both the U.S. and Mexico's energy sectors. When is the president's term up? How long is he in office? You said he's been six months already. When does it when does it when does it terminate? And the term and is last six years. Oh six years. So yeah it's a little bit longer than the U.S. Yeah but and there's not a possibility for reelection in Mexico. Oh you're just sort of one term that's it. Yes maybe we ought to adopt something like that here I think but that's just my thought. Anyway anyway so now if you you know that Trump has threatened and and he hasn't taken it off the table a tariff of five percent to twenty five percent does do you know if that tariff or that that array of tariffs that he is threatening includes tariff on on energy products? I believe so. I believe it includes all products. There wasn't many specificities on the the the political debate around this tariffs but it I believe it it encompasses all of the U.S. imports and exports between Mexico and the U.S. Okay well that sounds that's consistent but I wonder you know if he does that you know if he decides that Mexico is not making enough effort to stop migrants at the border and people sinking sanctuary and the like with you know the the new police force that Mexico is establishing for that purpose. If Trump doesn't like what Mexico is doing then he will he will impose tariffs and if he imposes tariffs and they cover oil and gas products from Mexico to the United States what is the effect of that of course American buyers and consumers will be taxed I mean that's that's the obvious result that American buyers and consumers will will pay for the cost of the tariffs but there's probably a secondary effect also how would that affect Mexico if Trump imposed these five to twenty five percent tariffs on Mexican energy products? Okay so if we look at the natural gas sector for a minute so it would affect both the U.S. and Mexico so the U.S. exporters of natural gas need a market for their product otherwise the product runs on negative prices because of the abundance of production that we've seen over the last decade on shell gas production. So without Mexico as a market the U.S. gas prices are affected. At the same time Mexico is affected because it does not have access to cheap and affordable natural gas like I said before Mexico depends on the U.S. for 60 percent of its natural gas imports so if we have tariffs on natural gas then our and our whole economy is affected and not only Mexico's economy and because of the nature of the U.S. and Mexico trade relationship both the U.S. and Mexico's economy would be affected because for example car manufacturers right now are benefiting from affordable natural gas prices from the U.S. so if the Mexican manufacturing manufacturing industry does not have the same access from from the for natural gas from the U.S. it will have to look other places to satisfy that demand and and this would be a lost opportunity for for integration and for logistical or the logistical benefits that exist from having an integrated natural gas market between the U.S. and Mexico. Is Mexico threatening Trump with tariffs on American products? I haven't heard it if it is you know. And so right now Mexico is quite vulnerable on the energy side. It does not have much power to leverage with the U.S. when it comes to energy because we don't have the same productions as we did in the past. We although we have abundant oil and gas resources and reserves we are not producing as much so we don't have that much leverage as we did before on that side. However our economy I think is the one that that saves us from from from having and from leveraging natural gas from the U.S. because for example international car manufacturers like Ford and other companies establish their factories in Mexico and they they are they they bring foreign direct investment to Mexico and create jobs but their integrated supply chains with the U.S. helps them compete better by having access to Mexico. Clearly you know that it has secondary effect if you start if you start bullying your neighbor on one thing before you know it things happen which you don't anticipate and that certainly the automobile supply chain would be part of that. You know and I think this very disruptive what he's doing and if I asked you Emily your advice that you would give to this administration this American administration you'd probably you'd probably tell me he should stop bullying Mexico because it doesn't work for anybody's benefit and it's very disruptive over the short term and the long term. Am I right? Yes absolutely and those that rhetoric does not really have any positive outcome either for the U.S. consumer or for the Mexican consumer who are the I mean if you want to have a trade war with an ally like Mexico then you have to really think about the consequences that it would have on your own country. Yes oh I totally agree and you know I'd like to to end with a positive thought would you like to hear my positive thought there is a positive side. Yeah absolutely. Most people you know haven't been thinking about our relations with Mexico oh they you know they might know some Mexicans they might employ Mexicans I mean Mexicans are all over the U.S. right everywhere they're part of our culture they're part of our workforce they're they're part of our country and they've been that way since 1850 or before so you know but what people haven't been thinking about and this is really worth thinking about now is our relationship with modern day Mexico about the the supply chain for cars about the about the fuel the oil and the gas that's moving across the border about Mexico as a as our neighbor as a long term friend people haven't been thinking about that they just sort of you know they just it's not at the top of consciousness that's all this ridiculous bullying that's going on now actually makes a lot of people don't you agree in this country more conscious of Mexico and and actually you know you you always kind of side with the victim in a bullying episode I I know I do so I think I think a lot of people are going to say wait man you know I need to know more about Mexico I need to I need to find out how we can have a wonderful long-term relationship there are friends there are relatives there there are there are partners in so many ways so actually at the end of the day Emily I hope it's I hope the the end of this administration happens quickly but at the end of the day we probably will have a better warmer relationship with Mexico than we had before don't you think so yeah yeah I hope so yeah I really hope that I mean that's a very positive and optimistic note because I think people in Mexico are also a little bit I mean threatened a little bit threatened by the US who has been a historic friend and that's regrettable yeah we wanted to think well of us and we want to think well of them and we want to have a you know a familial relationship if you will which we really have we just we have to focus on it well Emily Emily Medina thank you so much for joining us today and helping us with these things very complex in many ways and I'm so glad you were able to help us and I I hope we can do a show with you again in the near future thank you so much Emily thank you