Small Modular Reactors Nuclear Renaissance?
In the era of climate urgency, increasing energy demands, and geopolitical uncertainties, Small Modular Reactors (SMRs) could redefine the energy landscape and provide viable alternatives to current energy sources. SMRs present a scalable, safer alternative to traditional nuclear power. This report from London Politica explores the potential of SMRs to revolutionise energy production, mitigate climate change, and enhance energy security. With uranium prices soaring and global interest in nuclear energy surging, SMRs are poised to play a critical role in the nuclear renaissance.
Our comprehensive analysis covers key regions, including the US, Europe, and China, examining their nuclear strategies, regulatory landscapes, and market dynamics. We also delve into the controversies surrounding uranium supply chains and the broader political and economic implications of nuclear power. Dive into our in-depth analysis of the future of SMRs and their global impact.
Mexico’s Election Impact on Energy Policy
Background
On 2nd June 2024, Claudia Sheinbaum made history by being elected as Mexico’s first female president. With a strong academic background, Sheinbaum is a physicist holding a doctorate in energy engineering and was part of the Nobel Peace Prize winning UN panel on climate change. Sheinbaum’s economic agenda aims to capitalise on the opportunities presented by American nearshoring efforts, contingent on a stable and expanding energy supply.
Mexico is one of the largest oil suppliers in the world, having produced 1.6 million barrels daily in 2022. The country is also ranked 13th in the global crude oil output. Whilst Sheinbaum has promised to accelerate Mexico’s clean energy transition and aims to generate 50% of its energy from renewables by 2030, most spectators are divided. Some hope her scientific background will lead to a greater emphasis on clean energy, while others fear she might follow the policies of her predecessor, Andrés Manuel López Obrador, who invested heavily in bolstering fossil fuel-reliant state energy companies, PEMEX (Petróleos Mexicanos) and CFE (Comisión Federal de Electricidad).
Regardless of her position on energy transition, Sheinbaum faces the challenge of restoring investor confidence, which was shaken during López Obrador’s administration. Without this achievement, the new leader cannot guarantee Mexico’s energy stability and it could jeopardise the country’s commitment under the US - Mexico - Canada Agreement (USMCA) and the Paris Agreement.
Mexico’s gas supply, traditionally dominated by PEMEX, faced disruptions due to declining production and pipeline congestions. An energy reform in 2013 allowed private firms to enter the gas market to boost market competition and supply reliability. However, under López Obrador, the private sector participation was viewed as a threat, and efforts were allocated to prioritise PEMEX’s production. Currently, the company is the most indebted oil corporation in the world, with its stocks having a -5.74% 3-year return, compared to +11.48% from other companies in the same period and sector.
Considerations for Sheinbaum’s Energy Strategy
Sheinbaum has a decision to make regarding the energy future of Mexico. There is a confluence of energy-related factors that Sheinbaum will need to consider early in her administration, such as increasing domestic energy demands, pressure from environmental groups and international climate regimes, a deepened reliance on energy imports from abroad, and foreign companies’ dissatisfaction with the state’s current control of the energy sector.
Sheinbaum has long supported the state-centric energy policies of the previous administration, including legislative amendments that rolled back the 2013 constitutional reforms that helped liberalise the Mexican energy sector. Nevertheless, while Sheinbaum continues to defend the energy policies of the previous López Obrador administration, she is more pragmatic than her predecessor, which may provide a path for potential policy change to deal with the various energy issues facing her administration.
One area where Sheinbaum differs from López Obrador is the role of renewable energy sources in Mexico’s energy mix. Sheinbaum has a robust environmental pedigree and has published extensively on the clean energy transition. During her time as mayor of Mexico City, she implemented clean energy infrastructure and electrified transportation modalities. Furthermore, according to her campaign platform, she is committed to progressing Mexico’s clean energy transition and decarbonising the economy. However, climate progress under the Sheinbaum administration is likely to be tempered by fossil fuel supporters. Mexico still strongly depends on the oil and gas industry for its energy needs, accounting for over 80% of its energy mix in 2022. Understanding the necessity of oil and gas for the domestic economy, Sheinbaum has championed domestic oil production and supports the central role of PEMEX in the energy sector.
Source: IEA (2024)
As Mexican energy sovereignty will likely continue to be a focus for Sheinbaum’s administration, issues related to weak foreign direct investment in the Mexican energy industry are likely to persist. Under the current policy framework, private industry does not have an incentive to invest in exploration and production activities in Mexico. Lax private investment coupled with recent financial struggles at PEMEX may result in insufficient investment in Mexico’s energy infrastructure and increased reliance on energy imports. Therefore, to address the increased domestic energy demands, Sheinbaum may alter the government's prevailing energy strategy to ensure sustainable and robust energy supplies by providing private companies more control/access to the energy sector.
There are also broader trade implications regarding Sheinbaum’s potential approach to Mexico’s energy strategy, particularly how it impacts the country’s relationship with the US. The US Trade Representative communicated to its Mexican counterpart that the legislative amendments passed under the López Obrador administration violated investment provisions stipulated by the USMCA, leading the US to open dispute settlement consultations to address the issue. If a negotiated agreement is not reached, the US could invoke trade sanctions targeting Mexico in response. Failure to reaffirm Mexico’s commitment to the trade agreement could also lead to neglect of economic opportunities stemming from American nearshoring efforts.
The outcome of the 2024 U.S. presidential election will undoubtedly further impact Mexico’s energy sector, especially as it relates to trade and investment. Sheinbaum’s industrial policy plans and interest in promoting a green economy align with Biden’s focus on the clean energy transition and nearshoring efforts. Conversely, a Trump White House may provide a more hostile and coercive environment for Sheinbaum to operate within.
Outlook
Given the current instability affecting the early stage of Claudia Sheinbaum’s administration, companies and investors need to adapt their current strategy to seize the right set of circumstances for their business.
Despite the undefined agenda for energy public policies and the ongoing debate between energy transition and oil investment, Sheinbaum will need to prioritise a stable domestic energy supply. Therefore, companies that want to be aligned with the government's agenda should invest in projects focused on new technologies that bolster domestic production or increase resilience.
Foreign companies may have concerns about the continuation of policies aligned with López Obrador’s approach, especially given the limited or even absent participation of private investment in Mexican oil companies in recent years. To mitigate this risk, companies can engage and promote public-private partnerships, which can foster joint ventures. However, joint ventures can present risk in the case of the nationalisation of foreign companies, but this is unlikely to occur under Sheinbaum’s presidency. Investors should focus on sectors that are likely to receive government support, such as technologies that enhance energy independence or generate a constant supply.
It is important to mention that there will be clearer indications if Sheinbaum will prioritise climate commitments or follow the steps of her predecessor in due course. Additionally, the outcome of the US elections is likely to significantly impact the country’s energy policy framework.