Second phase critical in Mexico’s energy reforms, officials say

Mexico moved quickly once politicians there decided to adopt energy sector reforms, but the process’s second phase, which begins Feb. 1 and should be completed in 2 years, could be critical, an official of national oil company Petroleos Mexicanos (Pemex) said.

“The reform which was approved was much more liberal than what President Enrique Pena Nieto proposed last summer,” Fluvio C. Ruiz Alercon, an independent director at Pemex, said in remarks during a Jan. 16 discussion at the Brookings Institution. “It was quite fast-tracked. There are deadlines now for Congress to legislate the second law, and some of the terms might change.”

The reforms’ main provisions, which will let the country’s oil and gas and electric companies work with the private sector for the first time since they were nationalized in 1938, probably won’t change much, he indicated.

“There will be profit-sharing from oil production for the first time,” Ruiz said. “All the production chain links will be totally open. Private entities will participate too. Contracts which used to be offered by Pemex now will be offered by the Mexican government.”

Mexico’s natural gas pipeline network and electricity grid will be centralized while subsidies, “particularly on gasoline,” will be phased out, he added.

“While the state will continue to have a major role, there will no longer be just a single operator in Mexico,” Ruiz said. “Pemex will need to change from a public entity to a productive state enterprise.” Because it would be subject to heavier regulation, it would need budget autonomy so it can manage its finances and focus on the most profitable areas and hold onto its talent, he said.

Possible reintegration

“I believe this secondary legislation will give Pemex the ability to hire, enter into contracts, and do research and development,” Ruiz said. “This may lead to its reintegration. I believe the division, which occurred in the 1960s, has served its purpose. It will be vital to improve its technological competencies if Pemex is to remain competitive. It will need to form partnerships with companies from other countries.”

Diana Villiers Negroponte, a nonresident foreign policy senior fellow in Brookings’s Latin America Initiative, said that Mexico’s people still will own the actual oil and gas subsalt resources under the reforms, but anything that happens once the resources reach the surface can be competitive now.

“Pemex, as it becomes a profit-making national oil company instead of a government agency, will be able to enter into partnerships,” she explained. “It won’t have to pay such high taxes, but it will need to keep enough of its revenue to reinvest in new wells.”

A referendum to undo the reforms that opponents are mounting will give the government the opportunity to educate voters that the changes are good and should remain in place, Negroponte said. “In any case, I doubt that any international company will be ready to invest until after that referendum,” she said.

Arturo Sarukhan, who held several positions in Mexico’s Foreign Affairs Ministry before become chairman of a consulting firm, Global Solutions/A Podesta Co., said the current government’s ability to build coalitions puts Mexico on the verge of its biggest economic victory since the North American Free Trade Agreement.

“This will have profound economic and social impacts on Mexico,” he maintained. “But it also could help Mexico play a different global role with an improved energy sector.”

Moved quickly

When the US and Mexico reached a transboundary agreement in 2012, Mexico worked to conclude negotiations in a record 11 month and its Congress approved the treaty promptly, Sarukhan said. “The integration and addition of more Mexican energy coming on-line not only will change US imports, but also open possible sales to countries which are forming the Trans-Pacific Partnership,” he said.

The change will allow Pemex to think more globally and start working in other countries, according to Ruiz. But the most urgent need for outside capital will be domestic, where gas and electric infrastructure need to be built, he said.

“There will be challenges,” said Sarukhan. “One will be making sure the victory which has been won can be translated into public opinion. Privatization still is a dirty word to many people. It will be necessary to demonstrate that what has been a government monopoly won’t simply become a private one. The devil will be in the details, which will be worked out in the next few months.”

Ruiz said, “It could be difficult to win public opinion over in the short and medium term. That’s why it will be important to achieve a political consensus during this second period.”

Mexico’s Treasury Department could pose a problem since it stands to lose substantial direct revenue from Pemex, he warned. It will hard to maintain the national budget without the national oil company’s 40% contribution, he said.

“We can say Pemex can invest where it wants,” Ruiz said. “But Treasury ultimately may decide.”

Contact Nick Snow at nicks@pennwell.com.

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts

On Demand

OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST


Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected