WATCHING GOVERNMENT MEXICO WELCOMES GAS INVESTORS

With Patrick Crow from Washington, D.C. Mexico hopes opening its natural gas industry to foreign investors will result in the flood of capital it needs for that sector to grow. The Mexican Congress, in its last act of the regular session, voted to allow private investors, foreign and domestic, to participate in transmission, storage, and distribution of natural gas (OGJ, May 8, p. 83). Of course, Petroleos Mexicanos, the state oil company, will retain its monopoly on gas exploration and

May 22, 1995

2 min read

Mexico hopes opening its natural gas industry to foreign investors will result in the flood of capital it needs for that sector to grow.

The Mexican Congress, in its last act of the regular session, voted to allow private investors, foreign and domestic, to participate in transmission, storage, and distribution of natural gas (OGJ, May 8, p. 83).

Of course, Petroleos Mexicanos, the state oil company, will retain its monopoly on gas exploration and production.

OPPORTUNITIES

Mike Baly, president of the American Gas Association, which has Mexican companies as members, said, "We are very pleased and commend the government of President Ernesto Zedillo for proposing this important legislation. It is a logical step in implementing the North American Free Trade Agreement.

"We believe this action by the Mexican government will result in significant private investment in the Mexican natural gas industry, and this will provide a number of new jobs."

Opportunity clearly beckons.

Pemex plans to increase gas supplies in the next few years to meet higher fuel demand for power generation. It also has the environmental goal of replacing fuel oil burning plants with natural gas units.

The law will allow private investors to build power plants, combined cycle plants, or new lines that would compete with existing systems. The government simply cannot raise the $5 billion it thinks must be spent on such hardware during the next 3-4 years.

Nevertheless, some Mexican lawmakers are nervous about a high level of foreign investment and may seek a statutory limit when Congress returns in September.

WHAT'S NEXT

Now that the law is on the books, success or failure of the initiative will depend on how implementing regulations are written.

Mexico's new Energy Regulatory Commission, which will oversee the gas industry, plans to issue rules within 6 months.

It may give Mexican companies special incentives to enter the gas business. Companies are expected to be given 10-20 year concessions to build and operate gas pipelines and facilities, along with freedom to import and export gas.

The commission plans to allow a natural gas spot market and futures trading.

And the government will ensure that adequate gas supplies are available to feed the secondary petrochemical industry to facilitate Pemex's planned privatization of that industry within 1 year.