Mexico’s energy system is defined by a difficult contradiction. The country remains a major oil producer with a large refining network and one of Latin America’s best-known state energy companies. At the same time, its electricity system depends heavily on natural gas imported from the United States.
This relationship has helped Mexico replace some coal and oil-fired generation with lower-cost gas. However, it has also created a new form of energy dependence. Mexico now has to strengthen its oil industry, expand electricity supply, modernize the national grid and develop renewable energy without losing control of a sector closely linked to national identity.
Solar power in the north, wind energy in Oaxaca, hydropower in the south and nuclear generation at Laguna Verde all offer alternatives. The main challenge is connecting those resources to the industrial and urban regions where electricity demand is growing.
Oil, State Power and Mexico’s Energy Identity
Energy policy in Mexico cannot be separated from the role of the state. Petróleos Mexicanos, usually known as Pemex, controls most domestic oil and gas production. The Federal Electricity Commission, or CFE, remains the central company in electricity generation, transmission, distribution and supply.
Both companies have economic importance, but they also carry political and cultural meaning. Public control over oil has long been connected to Mexican sovereignty. Governments are therefore expected to treat oil fields, pipelines, refineries and electricity networks as strategic national assets rather than ordinary commercial infrastructure.
This helps explain why Mexico’s energy policy often looks different from policies in more liberalized power markets. Private companies can invest in generation, oil fields and energy services, but the federal government wants Pemex and CFE to remain the leading institutions.
Constitutional and legal reforms introduced in 2024 and 2025 strengthened this approach. Pemex and CFE were reorganized as state-owned public enterprises, while the Ministry of Energy recovered a stronger role in binding sector planning. The current framework still allows private participation, but projects are expected to fit within a national plan directed by the state.[1]
Mexico’s energy debate is therefore not simply about fossil fuels against renewable energy. It is also about who owns infrastructure, who controls investment and how much influence private producers should have over the country’s power system.
Mexico’s Oil Industry Faces Life After Its Largest Fields
Mexico built much of its modern energy economy around crude oil from the Gulf of Mexico. Offshore production supported public revenue, exports and the growth of Pemex for decades. The giant Cantarell field was especially important, but its decline changed the direction of the national oil industry.
Mexico’s total petroleum production reached its high point in 2004. Since then, output from mature offshore fields has fallen, while new discoveries have generally been too small to restore the earlier production level. Ku-Maloob-Zaap became the country’s most important producing complex after Cantarell, but it has also entered decline.[2]
Production remains concentrated in the shallow waters and coastal regions of the southern Gulf of Mexico, particularly near Campeche and Tabasco. Pemex is also developing newer fields, while projects such as Zama and Trion may add future production through cooperation with private partners.
The government’s strategy is not based on returning to the production levels of the early 2000s. Its stated goal is to keep hydrocarbon output near 1.8 million barrels per day while improving reserve replacement and directing more crude toward domestic refineries.[1]
This represents an important change. Mexico was once strongly focused on exporting crude oil, especially to the United States. It now places greater importance on processing oil at home and reducing imports of gasoline, diesel and other fuels.
Maintaining production will still require large investment. Older fields need advanced recovery methods, while new offshore projects carry higher costs and longer development periods. Pemex must manage these technical demands while also supporting refineries, pipelines, pensions and a heavy financial burden.
Oil remains essential to Mexico, but it is no longer an unlimited source of growth. The industry is now focused on controlling decline, developing selected new fields and gaining more value from each barrel inside the country.
Refineries and the Effort to Reduce Fuel Imports
Mexico has spent heavily to rebuild its refining system. Its domestic network includes facilities at Cadereyta, Ciudad Madero, Minatitlán, Salamanca, Salina Cruz and Tula, as well as the newer Olmeca refinery at Dos Bocas in Tabasco. Pemex also owns the Deer Park refinery in Texas.
The objective is energy self-sufficiency in transport fuels. Although Mexico produces crude oil, it has often imported large volumes of gasoline and diesel because its older refineries operated below their designed capacity. Maintenance problems, outdated equipment and difficulties processing heavier crude reduced domestic output.
The Olmeca refinery was designed to change this balance. Its location near oil-producing areas and Gulf Coast infrastructure gives it access to crude supply, ports and existing Pemex networks. The project is intended to add significant capacity for gasoline and diesel production, although reaching stable commercial output has taken longer than originally expected.
Mexico is also investing in upgrades at existing refineries, including coking equipment that can convert heavier material into higher-value products. The national system includes thousands of kilometers of crude pipelines, fuel pipelines, storage terminals and distribution facilities.[1]
Refining policy affects more than energy statistics. Fuel prices influence household budgets, freight costs, agriculture, public transport and manufacturing. Mexico’s size means that moving fuel from Gulf Coast refineries to inland cities and western states is a major logistical task.
Even with higher refinery output, full independence from fuel imports may remain difficult. Demand is large, refinery performance can change from year to year, and imported products may sometimes be cheaper. The wider goal is therefore to reduce exposure rather than completely isolate Mexico from regional fuel markets.
Natural Gas Has Become Mexico’s Most Important Power Fuel
Natural gas is now the central fuel in Mexico’s electricity system. It produced about 62% of the country’s electricity in 2024, making it far more important to power generation than coal, oil, nuclear energy or any single renewable source.[3]
Combined-cycle gas plants expanded because they can produce electricity efficiently, start more quickly than many coal plants and support changes in demand. Gas is also used by factories, steel producers, chemical plants and other industrial customers.
The main weakness is that Mexico does not produce enough natural gas to meet its own needs. Domestic gas output declined while electricity and industrial consumption increased. The difference has been filled mainly by pipeline imports from the United States.
U.S. pipeline exports to Mexico averaged about 6.4 billion cubic feet per day in 2024, the highest annual level recorded at that time. Monthly flows reached another record in May 2025 as demand from Mexican power plants increased.[4]
Much of this gas comes from Texas through a growing network of cross-border and domestic pipelines. It supplies power plants and industrial centers in northern, central and western Mexico. New infrastructure has also carried gas toward the Yucatán Peninsula and the Pacific coast.
This trade provides Mexico with access to the large and relatively low-cost North American gas market. It also creates a strategic risk. Disruptions in Texas can quickly affect Mexican power generation. During severe winter weather, competition for gas in the United States may reduce exports or raise prices.
The connection between the two countries is now so deep that gas imported from the United States was used to generate more than half of Mexico’s total electricity in 2024.[5] Mexico’s energy security therefore depends not only on its own resources, but also on pipelines, U.S. production and cross-border commercial relations.
Grid Expansion Is Now as Important as New Power Plants
Mexico does not only need more generating capacity. It needs stronger transmission lines to move electricity between regions.
The highest-quality solar resources are found mainly in the north and northwest. Major wind resources are located in Oaxaca and other coastal or open regions. Hydropower is concentrated in the south. However, the country’s largest industrial loads are spread across the northern border, the Bajío manufacturing region, central Mexico and major metropolitan areas.
Transmission limits can prevent cheap electricity from reaching these markets. A wind farm or solar park has limited value if it cannot secure an interconnection or if the surrounding network cannot carry its output.
This problem has become more urgent as nearshoring encourages companies to build factories and logistics operations closer to the United States. Nuevo León, Chihuahua, Coahuila, Baja California, Sonora and the Bajío states are attracting industries that need reliable power. Automotive plants, electronics production, data centers and advanced manufacturing can place heavy demands on local electricity systems.
Demand is also growing through population change, urban expansion and air-conditioning use. Hotter summers raise peak demand in northern cities and coastal regions, placing more pressure on generation reserves and distribution networks.
Mexico’s 2025–2030 electricity expansion plan calls for approximately 29,000 megawatts of additional public and private generating capacity. It also includes 158 transmission projects, new substations, substation expansions and thousands of distribution modernization and electrification projects.[6]
Regional separation adds another challenge. The main National Interconnected System covers most of the country, but the Baja California and Baja California Sur systems have developed with different physical conditions. Baja California has connections with the western United States, while Baja California Sur has traditionally operated as an isolated system.
These regions depend more heavily on local generation and fuel delivery. Solar energy, batteries, flexible plants and future transmission connections are therefore especially important on the Baja California Peninsula.
Coal Remains Concentrated in a Few Important Locations
Coal is no longer the main national energy story, but it remains part of Mexico’s power and industrial system.
The country’s large coal-fired power stations are concentrated in two areas. The José López Portillo and Carbón II plants are located near Nava in Coahuila, close to Mexico’s main coal-producing region. The Petacalco plant is located on the Pacific coast in Guerrero and has historically used imported coal.[7]
Coal mining has particular economic importance in northern Coahuila. Local communities, workers and suppliers depend on the industry even though coal represents a relatively small part of the national economy. This makes plant retirement and mine closure politically difficult.
Coal also supports industrial activity. Metallurgical coal and coke are used in steel production, especially in northern industrial states. Its role cannot be measured only through power generation.
Mexico has not built its future electricity strategy around a major coal expansion. Gas plants, renewable energy and grid investment are more central to current plans. However, there is also no immediate national phaseout that would remove all coal generation in the near term.
As a result, coal is likely to remain a limited but persistent source, especially when electricity demand is high or other plants are unavailable.
Laguna Verde Gives Mexico a Small but Strategic Nuclear Program
Mexico operates one nuclear power station: Laguna Verde, located on the Gulf Coast in Veracruz. The plant has two boiling water reactors with a combined installed capacity of about 1,620 megawatts.[8]
Laguna Verde normally provides only a modest share of Mexico’s total electricity. Its strategic value is greater than that percentage suggests. Nuclear generation produces steady power without depending on imported natural gas, daily sunlight, rainfall or wind conditions.
The first unit entered commercial operation in 1990, followed by the second in 1995. Their operating licenses have been extended, allowing Unit 1 to operate until 2050 and Unit 2 until 2055.[9]
These extensions make maintenance, safety oversight and equipment modernization increasingly important. The plant is operated by CFE, while Mexico’s nuclear institutions manage safety regulation, research and technical training.
Mexico has periodically discussed building additional reactors or studying small modular reactors. Nuclear power could reduce gas dependence and support climate targets, but no large construction program has moved into full development. Cost, financing, long project schedules and political approval remain major barriers.
Laguna Verde is therefore likely to remain Mexico’s only nuclear site for the immediate future. Its continued operation still gives the country technical experience that most Latin American states do not have.
Mexico’s Renewable Resources Follow Its Geography
Mexico has the geography to support a much larger renewable energy sector. Its challenge is not a lack of natural resources. It is the need for transmission, clear investment rules, storage, community agreements and faster project development.
Northern Mexico has some of the strongest solar conditions in North America. Sonora, Chihuahua, Coahuila, Durango and Baja California have large areas with intense sunlight and relatively low population density. Utility-scale solar parks can be built there, while rooftop systems are expanding in cities and commercial areas.
The Sonora Plan has placed solar generation, transmission, battery storage and electric vehicle supply chains within a wider regional development strategy. The Puerto Peñasco solar project is one of the most visible public investments connected to this policy.
Wind power has developed most strongly in the Isthmus of Tehuantepec in Oaxaca. The narrow geography between the Gulf of Mexico and the Pacific creates powerful and consistent winds. Oaxaca became the center of Mexico’s wind industry, although projects have also produced disputes over land rights, consultation, local benefits and relationships with Indigenous communities.
Tamaulipas, Nuevo León, Coahuila, Yucatán and Baja California also offer wind opportunities. Offshore wind has long-term potential, but Mexico’s immediate expansion is more likely to remain on land.
Hydropower is one of Mexico’s oldest renewable sources. Large dams in Chiapas and other southern states provide electricity, system flexibility and water management. Their output can change with rainfall, however, making drought an energy concern as well as an agricultural and water-supply problem.
Mexico also has a long history of geothermal power. Its volcanic geology supports projects such as Cerro Prieto in Baja California and Los Azufres in Michoacán. Geothermal plants can produce electricity throughout the day, giving them a reliability advantage over variable solar and wind facilities.
Solar and wind together supplied 11.9% of Mexico’s electricity in 2024.[5] Their share has grown substantially, but renewable development has not yet removed Mexico’s dependence on gas. Faster progress will require generation projects and grid infrastructure to move forward together.
Manufacturing Is Changing Where Mexico Needs Energy
Mexico’s energy demand is closely tied to its place in North American manufacturing.
The country is a major producer of vehicles, auto parts, appliances, electronics, steel, cement, chemicals and food products. Much of this industry is connected to supply chains that cross the United States border. Electricity reliability is therefore both an energy issue and a trade issue.
Companies considering new factories look at more than labor costs and transport access. They also examine whether enough electricity is available, whether new facilities can connect to the grid and whether power can meet corporate emissions targets.
This creates pressure for renewable electricity, private supply agreements and distributed generation. Export manufacturers may need cleaner power to meet environmental standards set by customers, investors or overseas regulators.
Northern Mexico has an advantage because it is close to U.S. markets and gas pipelines. It also faces water stress, extreme heat and local transmission limits. Southern Mexico has strong hydro, wind and solar resources but less industrial demand and weaker infrastructure in some areas.
Energy development could help reduce this regional gap. New transmission corridors could move southern renewable power toward central and northern markets, while also supporting local industry. Without those links, renewable-rich regions may not receive the full economic benefit of their resources.
Energy Policy Must Balance CFE Control With Private Investment
Mexico’s current model gives CFE a leading position while leaving defined areas for private capital.
The national electricity plan expects CFE to provide firm capacity, transmission, distribution and overall system reliability. Private firms can participate through self-generation, independent projects, long-term contracts and mixed investment structures. Some mixed projects require CFE to maintain a 54% interest.[6]
This arrangement is designed to avoid a complete state monopoly without returning to a system led mainly by private developers. Its success will depend on whether project rules are predictable and whether permits, interconnection studies and power contracts can be completed at sufficient speed.
Mexico also has climate commitments. Its updated international target calls for a 35% reduction in greenhouse gas emissions by 2030 compared with its reference scenario. The government has also announced plans for major additions of wind, solar, hydroelectric and geothermal capacity.[10]
Meeting those goals will require more than installing renewable plants. Mexico will need storage, flexible generation, modern distribution networks, industrial efficiency and better management of electricity demand.
Oil and gas will remain important throughout this process. Transport still depends heavily on petroleum products, while natural gas supports most power generation and a large part of industry. Mexico’s transition is therefore likely to be gradual rather than a rapid break with fossil fuels.
Mexico’s Energy Future Depends on Reducing One Dependence Without Creating Another
Mexico is not running out of energy options. It has oil and gas resources, a large refining system, an established nuclear plant and excellent solar, wind, hydroelectric and geothermal potential.
Its problem is how these assets fit together.
Pemex must maintain production while improving refinery performance and financial stability. CFE must add power plants while strengthening transmission and distribution. Renewable developers need clear routes to investment and grid access. Industrial regions need more reliable electricity, while energy-producing communities expect jobs, consultation and local benefits.
The most important energy security issue is natural gas. Gas has helped Mexico build a more efficient power system, but dependence on U.S. imports now affects more than half of national electricity generation. Domestic renewable energy can reduce that exposure, but only if Mexico builds the networks needed to use it.
Mexico’s energy future will therefore be decided as much by transmission lines, storage systems and investment rules as by oil fields or solar panels. The country has the resources to build a more diverse system. The central question is whether its institutions and infrastructure can develop them quickly enough.
