Mexico’s energy reforms will need to be bold, experts suggest

Mexico’s government, which is expected to announce energy reforms in August, will need to take bold steps if it expects to meaningfully participate in North America’s oil and gas renaissance, experts said at a Woodrow Wilson Center for International Studies forum.

“North America’s oil and gas revolution is of enormous importance to Mexico,” said Ernesto Marcos Giacoman, founding partner of Marcos y Associados, a consulting firm specializing in Mexico’s energy industry. “If we don’t do more serious reforms, more Mexican companies will start to build plans in the US because natural gas prices are lower, and Mexico will lose its competitive advantage.”

“A good part of Mexico’s private sector is withholding investment in [national oil company Petroleos Mexicanos] because it wants to see what happens with the reforms,” added Juan Pardinas Carpizo, general director of the Mexican Institute for Competitiveness. “The sooner this is resolved, the better.”

Duncan Wood, who directs the Wilson Center’s Mexico Institute and led the June 21 discussion, said Enrique Pena Nieto became president in December after campaigning to reform the government overall. Other political reforms agreed to move legislation ahead, and fiscal and energy reform proposals are pending, he indicated.

“This time around, everyone recognizes that changes need to be made,” Wood said. “There’s not agreement yet on what those changes will be.”

Possible steps

It’s generally assumed that Pemex will continue to own Mexico’s hydrocarbon resources, but production-sharing contracts and labor reform have been mentioned, according to Marcos. Downstream private investment also might be allowed, and the national hydrocarbons commission could have more regulatory power, he said.

“The last time I checked, there were no chemical molecules on Mexico’s flag, but everyone treats it that way,” said Pardinas. “The challenge the next few months will be to draw a line from oil and other chemical molecules through a national company with a confused corporate identity.”

The US could help reform efforts by releasing more information about dramatic changes under way in North American energy so Mexico would understand what it’s missing, he added. Pemex is the only one in the world that operates from the wellhead to the retailer, Pardinas said. “Even Cuba is more competitive,” he observed.

The country also badly needs to connect US gas transmission systems with Mexico’s industries, he said. “In parts of Mexico, we’re paying prices similar to China,” Pardinas said. “It’s essential to build infrastructure to bring US gas to Mexican industry, not only for energy security but also for economic growth.”

Marcos said Pemex would like to explore shale gas plays near the US border that are believed to be extensions of the Eagle Ford field. “My personal opinion is that it should not get involved in shale because it doesn’t have the technological capacity,” he said. “It’s hiring Schlumberger, Halliburton, and other service companies to operate field laboratories instead.”

Contact Nick Snow at nicks@pennwell.com.

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