Good morning. Our top story today comes from Mexico — a tale of the colossal price the country is paying to keep funding the state-owned oil and gas company, Pemex.

Our second note is on how the American Petroleum Institute, Washington’s powerful oil lobbyist, plans to deal with a new US government led by the man who said, ahead of the election, he would bring a “transition away from oil”.

The key points from consultancy McKinsey’s annual energy outlook, new forecasts from the Energy Information Administration, and some brutal clean energy job losses round out today’s newsletter.

Thanks for reading. Please get in touch at You can sign up for the newsletter here. — Derek

Mexico’s former cash cow drains the nation’s wallet

Propping up state oil company Pemex is costing Mexico’s cash-strapped government at least 1.4 points of GDP a year, according to Moody’s Investors Service and a senior former public official.

Pemex is a priority of populist President Andrés Manuel López Obrador, who sees the former monopoly as a lever of national development. He is investing heavily in a new refinery despite the company’s downstream activities losing money hand over fist and the firm suffering negative cash flow overall.

“Supporting Pemex in 2021, for the company to cover its financing needs, could impose a financial burden of up to $14.7bn or 1.4 per cent of GDP on the sovereign, in addition to the already budgeted transfer of $2.3bn to build the Dos Bocas refinery,” Moody’s said in a report.

That, however, is just to keep things muddling along for Pemex, rather than allowing it to boost production significantly.

“If the government was to provide additional capex of $10bn, which we estimate is the amount required on an annual basis to lift production on a sustained basis, the cost would rise to around $25bn or 2.3 per cent of GDP each year,” Moody’s said.

That chimes with the estimates of a senior public official, who told the FT that Pemex had “burnt through 300bn pesos” in 2020 — some 1.5 points of GDP. “It’s an incredible amount,” added the former official, who expected the company to need state support “very soon in 2021”.

The government has resorted to increasingly creative ways to help the nation’s former cash cow, as the nationalist Mr López Obrador continues to prohibit Pemex from sharing risk by partnering with private companies in exploration and production.

Supporting state oil company Pemex is placing an enormous burden on the Mexico’s government. © REUTERS

Nymia Almeida, Moody’s senior vice-president and a Pemex analyst, said that last year Pemex had been given about half the aid it received in 2019. That it had managed to keep production about stable when its main fields were mature and declining at 25 per cent a year was no mean feat, she said.

“The challenges are still the same: high tax and debt,” Ms Almeida said. Pemex is already the world’s most indebted oil company, with net debt of $110.3bn at the end of the third quarter of 2020 and $6bn due this year.

Pemex’s debt has already been downgraded to junk but could be at risk of further pressure if Mexico’s sovereign debt rating is cut — something that is no longer most analysts’ base case for this year unless economic recovery is badly delayed.

“The main trigger [to downgrade] Pemex is the sovereign,” said Ms Almeida. “In other years, it’s been the other way round.” (Jude Webber in Mexico City)

API readies to face off against the Biden administration

The American Petroleum Institute laid down battle lines with the incoming Biden administration during the group’s annual “State of American Energy” event yesterday.

Mike Sommers, the API’s president, said he “looked forward to working with” the new administration. But his speech made clear that there will be many more areas of conflict than co-operation.

On a federal leasing ban:

In response to the Biden team’s proposal to restrict drilling on federal land, Mr Sommers zeroed in on New Mexico — home to a fast-growing area of the Permian basin.

He argued a ban could cost New Mexico billions of dollars in state revenue and tens of thousands of jobs, appealing directly to Deb Haaland, a congresswoman from the state who Mr Biden has nominated to head his Interior Department.

“I hope that the new secretary of Interior, despite her previous positions on our industry, comes to understand the importance of development of our federal lands,” Mr Sommers said.

API boss Mike Somers said he ‘looked forward’ to working with the Biden administration. © Bloomberg

On new pipeline projects:

Mr Biden will be under pressure from progressives in his party to block construction of new oil and gas pipelines. Major projects like Keystone XL and the Dakota Access Pipeline hang in the balance.

“Each one of them is a magnet for obstruction and litigation,” said Mr Sommers, arguing the US would need “many more miles” of pipelines in the years to come.

On the California model:

Mr Sommers painted California as a cautionary tale to make a case against deploying clean energy mandates to achieve emissions targets. Mr Biden wants to make the grid emissions-free by 2035.

“California is trying to force an energy change that it simply isn’t ready for and technology doesn’t exist to support, putting its residents at risk,” Mr Sommers said pointing to a spate of blackouts during last Summer’s heatwaves. “No one should be surprised when reality keeps interfering.”

(Justin Jacobs)

McKinsey throws cold water on the outlook of a warming planet

The energy transition is accelerating, but the rise of renewables and peaking of fossil fuels will not happen fast enough to prevent catastrophic climate change.

That’s the gloomy takeaway from McKinsey & Company’s big new Global Energy Perspective report.

Some of its other conclusions:

Green power is king . . . Renewables will dominate the electrification trend: they will be cheaper than the marginal cost of fossil fuel plants by 2030 and account for half of power supply by 2035. Green hydrogen will be cost competitive in the 2030s (and a $100 carbon tax of around $100 per tonne would boost hydrogen demand significantly).

. . . but fossil fuels will stick around. Oil consumption will peak in 2029, followed by natural gas in 2037. Coal peaked in 2014 and will keep falling. But fossil fuels will still meet more than half of energy demand by 2050 and oil and gas will still suck up 50 per cent of investment by 2035.

The outlook for climate is bleak. Emissions need to halve by 2030 to restrict global warming to 1.5ºC warming — the threshold to avoid drastic global warming effects, says McKinsey. But energy-related emissions will remain flat until 2030, in the consultancy’s reference scenario, and then fall by just 25 per cent by 2050. Emissions in 2050 in McKinsey’s reference case are seven times higher than in its 1.5ºC scenario.

Policy is key to the energy transition. The pace of the energy shift remains swift. Wind costs have fallen by almost half in the past 10 years; those for solar and battery by 78 per cent. In 2017, 70 cities had announced measures against internal combustion engines. That number now sits at 200. Policy is what matters, McKinsey believes. (Derek Brower)

Data Drill

Coal-fired electricity generation is set to rise in the US over the next two years — and with it carbon emissions, according to the US Energy Information Administration’s latest Short Term Energy Outlook.

As we reported in November, an anticipated rise in natural gas prices will push power generators back towards more economical coal in the near term. The EIA now estimates the cost of gas-fired generation will jump by more than 40 per cent this year. As a result, coal’s bounceback will continue beyond 2021 and into 2022.

Line chart of US electricity generation by source (%) showing Coal-fired power is set to rebound over the next two years

That will, in part, ensure that last year’s pandemic-induced fall in greenhouse gas emissions is short-lived. As coal usage rises, so will the energy sector’s CO2 pollution.

Line chart of Million tonnes CO2 showing US energy emissions will return to growth in 2021 and 2022

Power Points

  • Japanese electricity prices hit all-time highs as a cold snap coincided with tight LNG supplies, raising fears of blackouts.

  • River dams in the US are gaining attention as a potential zero-carbon electricity source amid a truce between environmentalists and the hydropower industry. 

  • The scrapping of plans to build an export terminal on the Pacific coast scuppered US coal miners’ last-ditch hope for shipping big volumes to Asia.


The pandemic was terrible for oil and gas jobs. But clean energy employment was hit hard too — and is struggling to bounce back.

Despite the addition of almost 17,000 jobs in December, around 429,000 people previously employed by the sector remain out of work, according to an analysis released yesterday by BW Research Partnership. A staggering 70 per cent of the jobs lost have yet to be recovered.

Gregory Wetstone, chief executive of the American Council on Renewable Energy, described the sector’s recovery as “anaemic” and called on the incoming Biden administration to “finally enact the kind of comprehensive, long-term, scientifically-driven climate policy that puts millions to work”.

The president-elect has pledged to bolster the sector with the investment of $2tn in clean energy jobs (though he will probably struggle to get the full amount through Congress).

That support will need to come quickly. At the current rate of recovery, BW reckons, the sector will not reach pre-Covid employment levels until 2023. 

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs and Emily Goldberg.

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